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r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  Collection: Paul A. Volcker Papers Call Number: MC279  Box 12  Preferred Citation: Congressional Correspondence,July-September 1983 [Folder 2]; Paul A. Volcker Papers, Box 12; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingai1.s.princeton.edu/collections/MC279/c463 and https://fraser.stlouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Mudd Nfanuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) muddgprinceton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  RAL RE. • • •..• •  August 8 1983  The Honorable James L. Oberstar House of Representatives Washington, D. C. 20515 Dear Mr. Oberstar: letters Thank you for your letter of July 27 enclosing the Board's you received from your constituents regarding governing bank proposal to amend Regulation Y, its regulation tituents holding companies. Specifically, you and your cons the provisions of express concern about the proposed changes to a bank holding the regulation governing the redemption by company of its own securities. 6) Currently, the Board's Regulation Y (12 CFR 225. osed redemption by a requires a notice to the Board for any prop es if the conbank holding company of its own equity securiti percent of the net sideration paid for the shares exceeds 10 d reviews the notice worth of the bank holding company. The Boar d adversely affect the to determine whether the redemption woul Under the proposed safety or soundness of the organization. be required for any amendments to Regulation Y, no notice would holding company redemption if, after the redemption, the bank on established by meets the standards for adequate capitalizati of the Currency. The the Board of Governors and the Comptroller the minimum for safe Board generally regards these standards as s. and sound operation of banking organization any to make The proposal also allows a bank holding comp these capital stanredemption of its stock without regard to First, a company may dards under two additional circumstances. percent of its net make de minimis redemptions equal to one company may apply to worth in any 12 month period. Second, a mptions in unusual the Board for its approval to make rede ests, it is contemcircumstances. In considering those requ all effects of the plated that the Board would consider the over of the bank holding proposed redemption on the capitalization company. isions The proposed revision of the redemption prov ern with such redempemphasizes that the Board's primary conc holding company tions is the effect they have on bank n, the holding capitalization. In a redemption situatio retirement of its company's capital is reduced through the ction in capital is capital stock and, in many cases, this redu the indebtedness of accompanied by a corresponding increase in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable James L. Oberstar Page Two  words, the holding company to finance the redemption. In other debt in many cases, a redemption involves the substitution of for capital in the bank holding company. Under the proposal, comthe ability to make redemptions that reduce the holding ngent pany's capital and increase its indebtedness is made conti y capital upon the bank holding company satisfying the interagenc a standards. The proposal is premised upon the belief that conreduction in a bank holding company's capital may not be holding sistent with safe and sound banking practice where the standards company's capital will be below the minimum capital Currency. established by the Board and the Comptroller of the The Board has received numerous comments on the ons. proposed amendment, primarily from small banking organizati of The main thrust of the comments is directed to the fairness tted without the proposed provision that no redemption be permi prior approval where the bank holding company has a the debt-to-equity ratio in excess of 30 percent following application redemption. The comments have raised concern that situation will of the Board's capital standards in a redemption seriously limit the transferability of small banking organizations. While the Board is concerned with adequate capitalinized zation of bank holding companies, the Board has also recog nies in the unique function of small one-bank holding compa ng organifacilitating the transfer of ownership of small banki Factors zations. (Policy Statement on Assessment of Financial se of this of One-Bank Holding Companies, March 28, 1980.) Becau ownership of concern, the Board has, in proposals involving the o-equity small banking organizations, permitted liberal debt-t on the ratios substantially in excess of the 30 percent level its efforts to basis that the bank holding company would direct short time reducing its debt-to-equity ratio over a relatively will allow it to span in order that its improved debt capacity bank require serve as a source of strength should the subsidiary assistance. The Board's staff is reviewing modifications to the Board's proposed stock redemption proposal in light of the ownership of previously stated policy regarding the transfer of this principle in small banking organizations. Incorporation of the concerns the stock redemption regulation should address the proposal on raised by the comments regarding the effect of . the transferability of the ownership of small banks   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jams L. Oberstar Page Three  W2 appreciate having your views, and your concerns will be presented to the Board when it takes action on the proposal. I will be happy to let you know when the Board reaches a final (72c1sion on the matter. Sincerely, -• ,"4 • ,William R. Maloni Special Assistant to the Roard f  VM:DJW:vcd (V-158) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Messrs. Mattingly, Bradfield, Ryan Legal Files (2) Mrs. Mallardi.  CLO handling reply " r,  PLEASE SEND REPLY TO:  JAMES L. OBERSTAR  WASHINGTON OFFICE:  8TH DISTRICT, MINNESOTA  COMMITTEES:  PUBLIC WORKS AND TRANSPORTATION  Congre55 of the ?Unita'  CHAIRMAN: SUBCOMMITTEE ON ECONOMIC DEVELOPMENT MERCHANT MARINE AND FISHERIES  otifSe of ilepreiSentatibel Iltassbington, p.C. 20515 July 27, 1983  2351 RAYBURN HOUSE OFFICE BUILDING 0 WASHINGTON, D.C. 20515 (202) 225-6211  tate5  DISTRICT OFFICES:  BRAINERD CITY HALL 501 LAUREL STREET BRAINERD. MINNESOTA 56401 (218) 828-4400 CHISHOLM CITY HALL 316 LAKE STREET CHISHOLM, MINNESOTA 55719 (218) 254-5761  0  231 FEDERAL BUILDING DULUTH, MINNESOTA 55802 (218) 727-7474  Honorable Paul A. Volcker Chairman Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551  -). C.. 1r Z; ---, c-j  r, tr2  •7.-  Dear Chairman Volcker: .a.  Co CO . C17C)  r)-1 .-7-1 r--  •:,  I  CJI —I, rtl  ,Of I am writing to express concern about proposed changes in Secti1 225(b) —..• :,-., Federal Reserve Regulation Y. oe, r -i CD -------e::„...... by The proposed regulatory changes would prove detrimental to small banks In limiting the ability of small bank holding companies to market minority stocks. plans which own addition, these changes could eliminate employee owned stock option planning. bank holding company stock and limit bank holding companies in estate ng I have enclosed letters I recently received from my constituents regardi Reserve these changes. I hope that you will consider our concerns as the Federal finalizes any revisions. Thank you for your attention to this matter. Sincerely,  mes L. Oberstar, M.C. JLO/kjb Enclosures cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Robert Becklin Mr. Glenn S. Birkeland  PEOPLES STATE BANK of Cambridge & East Bethel  4101,1(04144o.  MEMBER FDIC " rirrr, tvodo:Vra. **Mil;  CAMBRIDGE, MINNESOTA 55008 July 15, 1983  Congressman James Oberstar 2351 Rayburn Office Building 2D515 Washington, D.C.  Dear Congressman, I am deeply concerned and oppose the proposed changes in Section 225.4B involving stock purchase or redemptions by bank holding companies. I oppose the changes for the following reasons: 1) The change would limit the ability for a small bank holding company to make a market in minority stock, 2) Employee Stock Ownership Plans (ESOP's) of which our holding company has a plan, which look to the holding companies for redemption of their stock, would be severly crippled, 3) Redemptions from the principal's estate would be much more difficult if not impossible, 4) It would reduce the holding companies ability to sell stock to infuse capital in the subsidiary bank, and 5) Many buy/sell agreements would be unworkable. I request that you ask the FED to consider seriously this major change, which will come down hardest on the small local bank holding companies. rVery,truly your  AIDE:  RCB/dja Encl.  FULL SERVICE, BANK/  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  21300 _  1  66 qe.  oberk—c. Becklin President  Lakeland State Bank PEOUOT LAKES, MINNESOTA 56472 • 218568/4025 BRANCH OFFICE CROSSLAKE, MINNESOTA 56442  GLENN S. BIRKELAND, President   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 14, 1983  Congressman James Oberstar 2351 Rayburn Office Building Washington, D. C. 20515 Dear Congressman Oberstar, I recently received notice that the Federal Reserve Board is receiving comments on revision of Regulation Y pertaining to the ownership of small banks by one-bank holding companies. I sincerely believe that the change in the regulation, as proposed, would be very detrimental to the small banks in the United States. It is my interpretation that w the one-bank holding company was implemented to allo the small banks to be owned by individuals and allow transfer of the stock. I would urge you to work against the change in Regulation Y as now proposed by the Federal Reserve Board. Thank you very much for your cooperation. Yours ,very truly, -  • '••••  GSB/mf  7- • 7  4300  •••  MB Maplewood WHITEBEARAND.E.AVEN,E, State Bank P O. BOX 2028 MAPLEWOOD, MINNESOTA 55109  (612) 777-7700  July 18, 1983  Congressman James Oberstar 2351 Rayburn Office Building 20515 Washington, D.C. RE:  Proposed Revision and Update of Regulation Y  Dear Congressman Oberstar: ered Maplewood State Bank is an independent locally owned State chart rs. bank with assets totalling approximately thirty million dolla We feel that the proposed regulation will adversely affect private holding ownership of small banks in that it will severely limit bank nuity of companies as an estate planning vehicle and will limit conti ownership. privately It will also reduce the marketability of minority interests of will adversely owned bank holding company stock. It also appears that it bank holding affect or eliminate employee stock option plans that own company stock. hip on We believe that this will place a substantial economic hards may be private owners of small banks such as ours and that small banks with the forced to file new bank holding company formation applications . Federal Reserve System as an alternative to stock redemption n B, be We ask that proposed Regulation Y Section 225.4, Subdivisio reconsidered and eliminated. I /triuly yours,' —  4  / G. Jbck Hillstrom President i/ ----_ GJH/p m --   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••••  • ' . .• 0*of GOVT  BOARD OF GOVERNORS OF THE  41:1 aidtad .  .• • “.1  FEDERAL RESERVE SYSTEM  .2-••• c.OL. • 4.RAL RE.- • • • • •.• • •  WASHINGTON, D.C. 20551  August 8 1983  The Honorable Robert T. Stafford United States Senate Washington, D. C. 20510 Dear Senator Stafford: Thank you for your letter of August 2 enclosing a letter you received from Mr. George D. Milne regarding the Board's proposal to amend Regulation Y, its regulation governing bank holding companies. Specifically, Mr. Milne expresses concern about the proposed changes to the provisions of the regulation governing the redemption by a bank holding company of its own securities. Currently, the Board's Regulation Y (12 CFR 225.6) requires a notice to the Board for any proposed redemption by a bank holding company of its own equity securities if the consideration paid for the shares exceeds 10 percent of the net worth of the bank holding company. The Board reviews the notice to determine whether the redemption would adversely affect the safety or soundness of the organization. Under the proposed any amendments to Regulation Y, no notice would be required for redemption if, after the redemption, the bank holding company meets the standards for adequate capitalization established by the Board of Governors and the Comptroller of the Currency. The Board generally regards these standards as the minimum for safe and sound operation of banking organizations. The proposal also allows a bank holding company to make redemption of its stock without regard to these capital stanmay dards under two additional circumstances. First, a company make de minimis redemptions equal to one percent of its net worth in any 12 month period. Second, a company may apply to the Board for its approval to make redemptions in unusual circumstances. In considering those requests, it is contemthe plated that the Board would consider the overall effects of proposed redemption on the capitalization of the bank holding company. The proposed revision of the redemption provisions redempemphasizes that the Board's primary concern with such tions is the effect they have on bank holding company capitalization. In a redemption situation, the holding company's capital is reduced through the retirement of its al is capital stock and, in many cases, this reduction in capit ss of accompanied by a corresponding increase in the indebtedne   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Robert T. Stafford Page Two  In other words, the holding company to finance the redemption. of debt in many cases, a redemption involves the substitution proposal, for capital in the bank holding company. Under the ing comthe ability to make redemptions that reduce the hold contingent pany's capital and increase its indebtedness is made ragency capital upon the bank holding company satisfying the inte ef that a standards. The proposal is premised upon the beli not be conreduction in a bank holding company's capita] may e the holding sistent with safe and sound banking practice wher tal standards company's capital will be below the minimum capi the Currency. established by the Board and the Comptroller of The Board has received numerous comments on the organizations. proposed amendment, primarily from small banking fairness of The main thrust of the comments is directed to the itted without the proposed provision that no redemption be perm a prior approval where the bank holding company has owing the debt-to-equity ratio in excess of 30 percent foll application redemption. The comments have raised concern that on situation will of the Board's capital standards in a redempti ing seriously limit the transferability of small bank organizations. taliWhile the Board is concerned with adequate capi also recognized zation of bank holding companies, the Board has companies in the unique function of small one-bank holding l banking organifacilitating the transfer of ownership of smal Financial Factors zations. (Policy Statement on Assessment of .) Because of this of One-Bank Holding Companies, March 28, 1980 the ownership of concern, the Board has, in proposals involving debt-to-equity small banking organizations, permitted liberal ent level on the ratios substantially in excess of the 30 perc ct its efforts to basis that the bank holding company would dire tively short time reducing its debt-to-equity ratio over a rela will allow it to span in order that its improved debt capacity idiary bank require serve as a source of strength should the subs assistance. the The Board's staff is reviewing modifications to the Board's proposed stock redemption proposal in light of of ownership of previously stated policy regarding the transfer of this principle in small banking organizations. Incorporation ess the concerns the stock redemption regulation should addr of the proposal on raised by the comments regarding the effect l banks. the transferability of the ownership of smal   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  - The Honorable Robert T. Stafford Rage Three  and his We appreciate having your constituent's views, takes action on concerns will be presented to the Board when it the Board the proposal. I will be happy to let you know when reaches a final decision on the matter. Sincerely, R. Ma7on1 (Signod) William R. Maloni Special Assistant to the Board  VM:DJW:vcd (V-156) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Messrs. Mattingly, Bradfield, Ryan Legal Files (2) Mrs. Mallardi  .*  • ••••' •  •• • 4;  .  CONIMRTEES:  Putout  ENVIRONMENT AND WORKS, CHAIRMAN  •ROBERT T. STAFFORD  LABOR AND HUMAN RESOURCES  VERMONT WASHINGTON OFFICE: E BUILDING 133 HART SENATE OFFIC 141 224-5 (202) TEL VERMONT OFFICES:  United e tats o tnate  27 SOUTH MAIN STREET FIUTLAND, TEL 775-5446 1 MAIN STREET CHAMPLAIN MILL--4TH FLOOR WINOOSKI, TEL 951-43707   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C. 20510  EDUCATION SUBCOMMITTEE. CHAIRMAN VETERANS AFFAIRS NEAL J HOUSTON ADMINISTRATIVE ASSISTANT  August 2, 1983  Mr. Paul A. Volcker Chairman Board of Governors of The Federal Reserve System Constitution Ave. & 21st Street Washington, D.C. 20551  CA•3 -4 rrl  Dear Mr. Chairman: tter from Mr. George D. Enclosed is a copy of a July 28th le s Bank, concerning proposals ng vi Sa e it an Gr of t en id es Pr e, ln Mi ral Reserve System for by the Board of Governors of the Fede revisions in Regulation Y. erns to your personal I would like to bring Mr. Milne's conc ation that you may be able attention and appreciate any inform . to provide me relating to this matter Sincerely,  Robert T. Sta United States RTS:mfr Enclosure  o d enator  I.  y.  ,  I sw a rn—Zs ItArn  1  ;  AA° ralir  K GRANITE SAVINGS BAN  and gt,,,it annpan  T 05641  BARRE, VERMON  802 478-3147 MEMBER FDIC  GEORGE D. MILNE ST OFFICER PRESIDENT & TRU   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 28, 1983  Mr. William W. Wiles, Secretary serve System Board of Governors of Federal Re 20th and Constitution Ave., N.W. Room 2223 Washington, D.C. 20551 of Regulation Y on si vi Re ed os op Pr g in rd ga Re Re: Comments Docket No. R-0470 Dear MY. Wiles: redrafted to continue to We urge that Section 225.4(b) be rr stock as is presently pe ei th em de re to s nk ba l al sm w lo al mitted. supported the use of the s ha d ar Bo nk Ba e rv se Re l ra de The Fe of making a market for s an me a as y an mp Co g in ld Ho One Bank uation of the support in nt co a d an s nk ba l al sm of k the stoc is needed. ed towards the larger ht ig we is , ed os op pr as , b) 4( Section 225. nks as it removes ba l al sm e th of t en im tr e de banks and to th k, while the large oc st s' nk ba l al sm e th of ty themarketabili markets for their stock. d he is bl ta es ve ha y ad re al s bank ed and eliminate this propos er id ns co re ll wi d ar Bo e th I hope basis as presently exists. me sa e th on ue in nt co d an rule ion. Thank you for your considerat Yours very tru y, .1  t  .  (  ,!) t George D. Milne, Presiden GDM/nsg cc: Senator Stafford Senator Leahy Representative Jeffords   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 8, 1983  The Honorable Lloyd Bentsen United States Senator 912 Fedrral Building Austin, Texas 78701 Dear Senator Bentsen: Thank you for your letter . of July 5 concerning correspondence you received from Mr. Keith NeGarrahan of Preston Securities in Arlington, Texas. Mr. McGarrahan also had written directly to the Board, and for your information I am pleased to enclose a copy of Chairman Volcker's response to him. I hope this infomation is helpful. Please let me know if I can be of further assistance. Sincerely,  Anthony F. _Cole Special Assistant to the Board Enclosure  RSP:AFC:vcd (V-123) bcc:  Mr. Plotkin Mr. Ryan Mrs. Mallardi,  M  ,  0. BOARD OF GOVERNORS  f  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER CHAIRMAN  August 2, 1983  Mr. Keith McGarrahan Vice President Preston Securities 424 Lamar Boulevard East, Suite 210 Arlington, Texas 76011 Dear Mr. McGarrahan: July 5, 1983, I am responding to your most recent letter dated on of margin regulations. complaining about the Federal Reserve's administrati with the System on numerous I am informed by staff that you have corresponded al securities which occasions in the past concerning a number of individu over-the-counter (OTC) list you were seeking to have placed on the Board's of securities. be realized by As you are obviously aware, economic benefits can us of a security is changed market makers and brokers when the margin stat isely for this reason that the by its placement on the OTC list. It is prec ered fairly and imparBoard insists that the margin regulations be administ addition or deletion of tially and that objective criteria be used in the have been the subject of specific securities. All of the securities that be reviewed in accordance your various inquiries have been and continue to cate that in the past with these established procedures. Our records indi in status of six stocks; two years you have expressed interest in the marg t, following the estabtwo of these have subsequently been added to the lis previously advised, lished procedures, and, as I believe you have been the list in October 1983. three more are candidates for the next revision of ons and its I might note that the Federal Reserve's regulati owing ample opportunity for comimplementation procedures were adopted foll in the investment community. I ived rece y rabl favo very been have and ment in margin status for particular fully appreciate that you are anxious to obta t the Federal Reserve cannot issues; however, I think you can understand tha on of the margin regulations compromise its impartiality in the administrati to accommodate individual interests.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sin  rely,  oadfav-  F  LLOYD BENTSEN COMMITTEES:  TEXAS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  FINANCE ENVIRONMENT AND PUBLIC WORKS JOINT ECONOMIC  'ZICrtifeb Zfafez Zertafe WASHINGTON. D.C.  JOINT COMMITTEE ON TAXATION SELECT COMMITTEE ON INTELLIGENCE  20510  July 5, 1983  Mr. Paul S. Volcker, Chairman Federal Reserve System Constitution Avenue between 20th and 21st Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I am writing concerning my previous inquiry on behalf of Keith McGarrahan of Preston Securities. A copy of his most recent correspondence is attached for your reference. I would appreciate whatever additional information or comments you may have on this matter at this time. Sincerely,  Bentsen osure PLEASE REPLY TO: 912 Federal Building Austin, Texas 78701 ATTN: Ms. Leslie Pool  t1 4',J1V1-13 31!I JO 331JJ3 [HAIM  8Z :8 IV 8- 11r CHI ki31SAS 3M33211 1ni3O3J 31.11 JO SHNII3A00 JO GliVOO  PRESTONSECURITIES ANGE MEMBER NEW YORK STOCK EXCH  JUN 5 u  424 LAMAR BLVD EAST SUITE 210   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ARLINGTON,TEXAS 76011 METRO 461 • 1591  A •-•  ors June 24, 1983  (‘  1:1  ntsen Senator Lloyd Be Office Building 703 Hart Senate 20510 Washington, D. C. sen: Dear Senator Bent  dealing with at e ar we at wh of ample in his letter Here is a good ex s re no ig ly te le an comp k advising the stoc the Fed. Mr. Ry us n te it wr d ey ha (enclosed) that th fall below $5.00 t no d di k oc st the would be listed if tched the stock wa ng vi Ha . od peri below $9.00 per during the survey ed ad tr r ve ne you it daily, I can tell period. share during the and his associates an Ry . Mr , is m oble You can see the pr e issues is on es th of e on r he mn whet do not give a da e response we've th of l ca pi ty It is the list or not. had for years. has ty this nonsense ul ic ff di at wh u culous I can't tell yo just plain ridi is It y. an mp co wrought on our get these replies. to ue in nt co we that little or no time t en sp an Ry . Mr s that that someone st It is also obviou si in ll wi u yo I hope put in charge on this problem. be e ns se on mm co ty and with responsibili of these matters! Yours truly, , INC. PRESTON SECURITIES  Keith McGarrahan Vice President KMcG/bt encls.  •  BOARD OF GOVERNORS .• • •„.. .•• Of GOVTR .•  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  DIVISION OF NANKING  supciavisloN Apetb  IE  U LAT I Cho  June 20, 1983 Mr. Keith McGarrahan Vice President Preston Securities 424 Lamar Blvd. E. Suite 210 Arlington, TX 76011 Dear Mr. McGarrahan: This is in response to your letter of June 6, 1983 regarding the Board's List of OTC Margin Stocks. You indicate that you have not received a response to your May 19, 1983 letter, requesting information as to why the stock of Machine Technology, Inc. is not on the List . I am enclosing a copy of a letter, written May 31, 1983, explaining that stock's situation which must have crossed your letter in the mail. Staff has informed me that the stocks of Patrick Industries Inc. and Machine Technology, Inc. are again being cons idered for inclusion on the List, to be revised this Fall. Survey forms requesting financial data to be used in conjunction with that revision will be sent to the companies within the next two weeks. You might also be happy to know that the stock of American Software, Inc., about which a member of your firm, Mr. Larry Huddleston inquired, is also being considered at this time. We hope this information is satisfactory. Sincerely,  John E. Ryan Director Enclosure cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Lloyd Bentsen United States Senate Washington, D.C. 20510 Honorable John Tower United States Senate Washington, D.C. 20510 Honorable Martin Frost United States House of Representatives Washington, D.0 20510  August 9, 1983  The Honorable Rill McCollum House of Representatives Washington, D. C. 20515 Dear Bill: Thank you for your letter of August 1 recommending Mr. Joseph M. Mason, Jr., for a position on our Consumer Advisory Council. I can assure you that Mr. Mason will receive full consideration when the Board selects eight new Council members later this year. The Council provides valuable assistance in advising the Board on its implementation of consumer regulations and on other consumer-related matters, and the Board is pleased to receive recommendations for qualified indiviauals who can contribute to the Council's work. Again, the Board appreciates having your recommendation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, A ' 5 3) V.  •  ti3r1  1144824  CLO will send response to Chairman today 1507 LONG WORTH HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-2176  BILL McCOLLUM 5TH DISTRICT, FLORIDA  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  Congress of the United e5tates  COMMITTEE ON  touse of Rcpresentatitns VOashington, 33.0. 2o515  THE JUDICIARY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  DISTRICT OFFICE: SUITE 301 1801 LEE ROAD WINTER PARK, FLORIDA 32789 (305) 645-3100 FROM LAKE COUNTY, TOLL FREE: 383-8541  August 1, 1983  C"D  rn rn rn  The Honorable Paul A. Volcker Chairman Federal Reserve Board of Governors 20th & Constitution Ave., N.W. Washington, D.C. 20515  2:•■• _ ---4  D  41•••••••  Dear Mr. Chairman: The Federal Reserve Board is currently taking nominations for openings to the Consumer Advisory Council. I would like to place in nomination to the Consumer Advisory Council, Mr. Joseph M. Mason, Jr., of Brooksville, Florida. Mr. Mason's resume is attached. Joe Mason and I grew up together in Brooksville, Florida. We both attended the University of Florida law school and served in the Judge Advocate General's Corps in the Naval Reserve. I can not speak highly enough of Joe Mason. He is a man of integrity, who is intelligent, articulate and well-thought-of by his friends and neighbors. You could not possibly choose a more capable and willing individual to join the Council than Joe. He would be a tremendous asset to the Council and would be an active participant from the southeastern part of the the United States. Florida has not had a representative on Consumer Advisory Council in the past few years. Therefore, I highly recommend Joe Mason to you for your consideration. I encourage you to thoroughly review Joe's qualifications, as I believe you will find him to be a valuable addition to the Consumer Advisory Council. Thank you for your time and attention to this matter. Sincerely,  BILL McCOLLUM Member of Congress BMcC/law  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 3  Resume, Joseph M. Mason, Jr., July 29, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 8, 1983  The Honorable Slade Gorton Chairman cy Subcommittee on Economic Poli g and Committee on Banking, Housin Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Gorton: that I forward Chairman Volcker has,, asked of osed report on estimates to you a copy of the encl exchange rates that effects of interest rates on your request during the was prepared as a result of also furnished a copy to hearing on July 28. I have of inclusion in the record the Subcommittee staff for the hearing. n be of further Please let me know kf I ca assistance. Sijicerely, Co].' (Signed) Anthony F. Anthopy F. C.ple Board Special Assi„stant thp the Enclosure  CO:AFC:vcd bcc:  Rick Haas Ted Truman Mrs. Mallardi.  Insert page 25-26  (July 28, 1983 hearing before Subcomnittee on Economic Policy of Senate Banking)  rmation for Chairman Volcker subsequently submitted the following info inclusion in the record of the hearing:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Estimates of Effects of Interest Rates on Exchange Rates  The quantitative evidence on the relationship between interest . rates and exchange rates should be interpreted with care points should be made at the outset.  Two important  First, econometric estimates of  vary a great deal coefficients relating interest rates and exchange rates estimates derived depending on the period studied and, furthermore, the in statistical from the data for any given period are not very precise terms.  to a Second, changes in interest rates may occur in response  rates variety of factors and consequently the effects on exchange substantially. associated with a given change in interest rates may vary the money supply For example, a decrease in the fiscal deficit, holding rates and also to constant, normally would be expected to lower interest lead to a decline in the foreign exchange value of the dollar. money supply also Similarly, an increase in the growth rate of the U.S. and the dollar would normally be expected to depress both interest rates in the short run.  n However, higher inflation from the monetary expansio  the dollar might could lead to subsequent increases in interest rates and n. depreciate further to compensate for the higher U.S. inflatio and Research on the relationship between interest rates has been exchange rates by the staff of the Federal Reserve Board conducted along two lines.  The first exploits single-equation models of  tural econometric exchange rates, the second makes use of a large struc model.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  explain The single-equation studies use regression analysis to e of the dollar movements in the weighted-average foreign exchange valu inflation rates.--' A with several variables including interest rates and various time variety of similar equations have been estimated over periods.  In sum, they suggest that the effect of reducing U.S.  short-  all other factors term interest rates by one percentage point, holding percent to a constant, ranges from a depreciation as small as 0.1 depreciation as large as almost 4 percent.  The size of the coefficient  statistical relating interest rates to exchange rates (and its frequency of the data, significance) varies with the period analyzed, the estimated. and with the particular specification of the equation rest An alternative method of analyzing the effects of inte ale Multi -Country rates on exchange rates has been to use the large-sc staff. Model (MCM) developed by the Federal Reserve Board  The MCM  ls of four of its includes a model of the U.S. economy as well as mode most important trading partners: Kingdom.  Canada, Germany, Japan and the United  are In the MCM both interest rates and exchange rates  model, responding to simultaneously determined by the structure of the in other factors such changes in economic policies, as well as to changes of an approach such as as investors' portfolio preferences. The strength culated structures and that of the MCM is that such models have fully arti be affected in several can allow for interest rates and exchange rates to different ways.  Furthermore, this type of approach allows for the  of "feedback" interaction both within and among economies in the form  1/  average of The "exchange rate" in these studies is a weighted the G-10 countries bilateral exchange rates for the dollar against shares of total and Switzerland. The weights are multilateral trade.  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3-  effects.  The potential drawback of the MCM, indeed of any model, is that  simulation results are dependent on the particular model being a reasonably accurate representation of the economy in terms of both the structure specified and the coefficients of the equations.  Financial  sectors of international models have always proved particularly difficult to construct.  The simulations discussed below are subject to these  qualifications, since they take the MCM's structure, which at hest reflects normal relationships, as appropriate for the analysis of a specific question in specific circumstances.  In simulations with the  MCM, the historical responses of exchange rates to the induced changes in interest rates are attributable solely to the initial change imposed on the model that, in turn, works through the specific structure of the model. In the MCM, a reduction in U.S. government expenditures leads to a decrease in short-term U.S. interest rates as well as a depreciation of the dollar.  After four quarters, a decline of one percentage point  is in U.S. short-term interest rates resulting from such a fiscal action after associated with about a 1/4 percent depreciation of the dollar and eight quarters with a one percent depreciation. "  It should be noted  s are that the longer the simulation is continued, the more the result affected by the multiple interactions in the model. In the MCM, an increase in the growth rate of the U.S. monetary to aggregates also causes U.S. interest rates to fall and the dollar ere in depreciate, but a monetary expansion has different effects elsewh , trade2/ The depreciation of the dollar is against a multilateral in the weighted average of the currencies of the other four countries e y MCM, but since these are the major currencies in the 10-countr averag described in footnote 1, the results are roughly comparable.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4-  the economy--on output, inflation and the current account.  Because of  these different effects, a one percentage-point decline in U.S. short term interest rates resulting from a faster expansion of the money stock is associated with 3/4 percent depreciation of the dollar after four quarters of simulation and 1.6 percent after eight quarters.  A part of  this depreciation in effect compensates for the higher inflation rate induced by the more expansionary monetary policy. These two simulations show that, depending on the source of the or initial change in interest rates, exchange rates may move either more less than in proportion to the change in interest rates.  In other  be simulations movements in interest and exchange rates need not even positively related.  For example, a simulation in the MCM of an  autonomous shift by  private wealth holders out of financial assets  denominated in foreign currencies and into assets denominated in U.S. r dollars produces a decline in U.S. interest rates and the dolla appreciates. This brief discussion of research and analysis undertaken at to keep the Federal Reserve Board underlines two important propositions on in mind when analyzing the effects of changes in interest rates exchange rates. that precise. this point.  First, the simple correlation between the two is not all The studies using single-equations clearly demonstrate  Second, in more elaborate models it is crucial to specify  the original source of any interest rate movement.  The results of  assumes simulations with the MCM show that even if one (unrealistically) that the structural relationships are known with certainty, the exchange relationship between changes in interest rates and changes in rates is not simple and cannot he captured in a single figure.  August 8, 1983  The Honorable Mark Andrews United States Senate Washington, D. C. 20510 Dear Senator Andrews: By letter dated June 17, 1983, we advised you that the proposal by Dakota Bankshares, Fargo, North Dakota, to acquire the Dakota Bank of Wahpeton, Wahpeton, North Dakota, was being processed on an expedited basis and that you would he kept apprised of any developments. The Board today approved the application, and T am pleased to enclose a copy of the Board's Order. Please let me know if I can he of further assistance. Sincerely,  Anthony F. Cole Special Assistant to the Board 7.nclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  VM:vcd (V-102) bcc:  Messrs. Mattingly and Bradfield Legal Files (2) Mrs. Mallardi  41,  August 8, 1983  The Honorable Quentin N. Burdick United States Senate Washington, D. C. 20510 Dear Senator Burdick: By letter dated June 17, 1983, we advised you that the proposal by Dakota Bankshares, Farao, North Dakota, to acquire the Dakota Bank of Wahpeton, Wahpeton, North Dakota, was being processed on an expedited basis and that you would be kept apprised of any developments. The Board today approved the application, and I am pleased to enclose a copy of the Board's Order. Please let me know if I can be of further assistance. Sincerely, (a4ilea)  .‘s*  Anthony F. Cole Special Assistant to the Board Friclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  VM:vcd (V-97) bcc:  Messrs. Mattingly, Bradfield Legal Files (2) Mrs. Mallardi  41,  QUENTIN N. BURDICK NORTH DAKOTA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ?.1Cnifeb Zfatez Zenafe ,)/‘ WASHINGTON. D.C. 20510  ,o9 VI e , (...,  June 3, 1983 5-?,_  00 c9 ,0 vo 0 Tr  C>  Mir. Paul Volcker Chairman Board of Governors of the Federal Reserve System 20th and Constitution Avenue, West Washington, D.C. 20551  r^ .'4 rrl  -;.,-;:a r re  LIP  Dear Mr. Volcker, Hopefully, by the time you receive this letter, we may have spoken by telephone. I was back in my home state of North Dakota for the Memorial Day recess.  T  I visited with several of my constituents who were very upset by the refusal of the Federal Reserve to grant the Application necessary for the opening of the new bank. These people were particularly upset because there is not another bank in Wahpeton, North Dakota that has local ownership of people in Wahpeton and by a company based in North Dakota. As you may or may not know, Wahpeton, North Dakota is the county sent of Richland County with a population of approximately 10,000 people and a trade arrn of 20,000 to 30,000 people. The only two banks in Wahpeton are owned by the two large chain banking organizations out of Minnenpolis, Minnesota, First Bank System and Northwest Bancorporation, which is now called NorNest Corporations It is my understanding from my staff that these two Minnesota banking corporations are among the 25 largest in the United States, each having assets of 15,000,000,000 to $20,000,000,000. The people who have contacted my office and me have indicated that they feel that these two large banking corporations have had a part in resisting this local North Dakota competition from coming into their town. They tell me that the capital-to-asset ratio is the renson used by the Federal Reserve for denying this application. Yet, they state that these two large banking corporations have a lower capital-to-asset ratio than the North Dakota Bank Holding Company. I would appreciate your giving to me the facts in this Area.  ...A  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Paul Volcker  2  June 3, 1983  Frankly, my North Dakota constituents and I are very disappointed in any action that keeps our local people in North Dakota from competing. This new bank would have created several new job positions in Wahpeton, which certainly can be used in these difficult times for the agricultural econamy. In addition, we could certainly use the additional banking capital of $1,000,000, the deposits that would have been generated and the loans to our agricultural based economy in these pressing economic times. I would personally like to have same of your thoughts as to why this Application was denied and if there is any opportunity to revive this banking business for Wahpeton, North Dakota. I will look forward to your reply. Sinckely yours,  Quentin N. Burdick QNB:mfl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C A4 BOARD OF GOVERNORS OF THE • c0  FEDERAL RESERVE SYSTEM  '0 • -n  WASHINGTON, D. C. 20551  tr‘  Rt.S• r‘AL •  August 5, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate 20510 Washington, D.C. Dear Jake: During your address at the Eccles Building dedication ceremony last week, I first learned that Mr. Mitchell Melich of Salt Lake City was responsible for recommending to you that the Board Building be renamed after Marriner S. Eccles. In view of this role, it seems fitting that we present Mr. Melich a memento of the occasion similar to those which you and the other program participants received. I am enclosing the plaque for your transmittal to Mr. Melich. I very much appreciated your attendance at the rededication ceremony and your participation in the program. Sinc rely,  atd /  Enclosure  .• • : f GOVtx •  BOARD OF GOVERNORS  .*  OF THE .• ...- •  •o • •ri • -A 4*1  r  w  i!, 1-: .iit• A.." \,...,.. [I LI. [r[ [ . 4.4., .,+-• j • A:6', .r.:.".. ' ... •0 •• eRA L RE.Stst•. • '• •..• '  FEDERAL RESERVE SYSTEM WASHINGTON, 13. C. 20551  August 4, 1983  The Honorable Ron Marlenee House of Representatives Washington, D. C. 20515 Dear Mr. Marlenee: 1 regarding the Thank you for your letter of August n Y, its regulation governing Board's proposal to amend Regulatio lly, you express concern about bank holding companies. Specifica ions of the regulation governthe proposed changes to the provis ding company of its own ing the redemption by a bank hol securities. Y (12 CFR 225.6) Currently, the Board's Regulation any proposed redemption by a requires a notice to the Board for equity securities if the conbank holding company of its own eeds 10 percent of the net sideration paid for the shares exc y. The Board reviews the notice worth of the bank holding compan n would adversely affect the to determine whether the redemptio zation. Under the proposed safety or soundness of the organi ice would be required for any amendments to Regulation Y, no not tion, the bank holding company redemption if, after the redemp capitalization established by meets the standards for adequate ptroller of the Currency. The the Board of Governors and the Com ndards as the minimum for safe Board generally regards these sta organizations. and sound operation of banking ding company to make The proposal also allows a bank hol ard to these capital stanredemption of its stock without reg stances. First, a company may dards under two additional circum al to one percent of its net make de minimis redemptions equ Second, a company may apply to worth in any 12 month period. e redemptions in unusual the Board for its approval to mak requests, it is contemse tho ng eri sid con In s. nce sta circum sider the overall effects of the con ld wou rd Boa the t tha ted pla lization of the bank holding ita cap the on n tio emp red ed pos pro company. emption provisions The proposed revision of the red y concern with such redempmar pri s rd' Boa the t tha s ize emphas on bank holding company tions is the effect they have n situation, the holding capitalization. In a redemptio ough the retirement of its company's capital is reduced thr this reduction in capital is es, cas y man in , and ck sto l capita increase in the indebtedness of accompanied by a corresponding   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Ron Marlenee Page Two  In other words, the holding company to finance the redemption. titution of debt in many cases, a redemption involves the subs Under the proposal, for capital in the bank holding company. the holding comthe ability to make redemptions that reduce is made contingent pany's capital and increase its indebtedness interagency capital upon the bank holding company satisfying the the belief that a standards. The proposal is premised upon may not be conreduction in a bank holding company's capital where the holding sistent with safe and sound banking practice capital standards company's capital will be below the minimum of the Currency. established by the Board and the Comptroller the The Board has received numerous comments on ing organizations. proposed amendment, primarily from small bank the fairness of The main thrust of the comments is directed to permitted without the proposed provision that no redemption be has a prior approval where the bank holding company following the debt-to-equity ratio in excess of 30 percent ern that application redemption. The comments have raised conc mption situation will of the Board's capital standards in a rede l banking seriously limit the transferability of smal organizations. capitaliWhile the Board is concerned with adequate has also recognized zation of bank holding companies, the Board ing companies in the unique function of small one-bank hold small banking organifacilitating the transfer of ownership of of Financial Factors zations. (Policy Statement on Assessment 1980.) Because of this of One-Bank Holding Companies, March 28, lving the ownership of concern, the Board has, in proposals invo ral debt-to-equity small banking organizations, permitted libe percent level on the ratios substantially in excess of the 30 direct its efforts to basis that the bank holding company would relatively short time reducing its debt-to-equity ratio over a city will allow it to span in order that its improved debt capa subsidiary bank require serve as a source of strength should the assistance. tions to the The Board's staff is reviewing modifica light of the Board's proposed stock redemption proposal in transfer of ownership of previously stated policy regarding the ation of this principle in small banking organizations. Incorpor address the concerns the stock redemption regulation should effect of the proposal on raised by the comments regarding the of small banks. the transferability of the ownership   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  The Honorahle Ron ?''arlenee Page Three  We appreciate having your views, and your concerns will be presented to the Board when it takes action on the proposal. I will he happy to let you know when the Board reaches a final decision on the matter. Sincerely, (Slmed) Donald J. Winn Assistant to the Board  VM:DJW:vcd (#V-151) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Messrs. Mattingly, Bradfield, Ryan Legal Files (2) _ Mrs. Mallardi  ter  Is being handled by CLO MONTANA  RON MARLENEE  OFFICES:  312 9TH STREET, SOUTH GREAT FALLS, MONTANA 59405  MONTANA  (406) 453-3264  •  WASHINGTON OFFICE: 409 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515  Congrc55 of tbe Ziniteb  (202) 225-1555  2717 FIRST AVENUE, !NORTH  tate5  59101  BILLINGS, MONTANA (406) 657-6753 TOLL  jDoufSe of AtproSentatibefi  FREE  600-332-5965  Meusbington,73.C. 20515 C.71  CO G.A.)  --711  August 1, 1983  ; C73 rn  CO  C=I  r--  cn  , c7 nl  rr1  44)  rn  Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Constitution Avenue and 21st Street Washington, D.C. 20551  c7) ..-r71  rn -72  rn  :77  17.071  nn  (t9  c•D rn  Dear Mr. Chairman: ons to I have become aware that the Federal Reserve Board's proposed revisi Regulation Y will have a serious impact on private owners of small banks. ered in the Please include this letter in the official record to be consid final rulemaking. are that the The predominant concerns expressed by my banking constituents of small banks proposed regulations will adversely affect private ownership es, limiting the by limiting bank holding companies as estate planning vehicl ty interests continuity of ownership by reducing the marketability of minori affecting employee of privately owned bank holding company stock, as well as stock option plans that own such stock. ask that the On behalf of my small business constituents, I would like to consideration Board thoroughly review these concerns and take them into full to my letter. in the final rulemaking. I would also like to have a response Thank you for your courtesy and cooperation. Sincerely,  -) Ron Marlenee Member of Congress  COUNTIES BIG HORN BLAINE CARBON CARTER MUSSELSHELL PETROLEUM MC CONE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CASCADE PHILLIPS  BASIN DANIELS DAWSON FALLON FERGUS GARFIELD GOLDEN VALLEY HILL JUDITH CHOUTEAU CUSTER TETON SWEET GRASS STILLwATER SHERIDAN ROSEBUD ROOSEVELT RICHLAND PRAIRIE POWDER RIVER E YELLOWSTON WIBAUX WHEATLAND TREASURE VALLEY  ..... f• Gov;.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  RALREs'••• • ••..•  August 4, 1983  The Honorable Robert W. Kastenmeier House of Representatives Washington, D. C. 20515 Dear Mr. Kastenmeier: enclosing a letter Thank you for your letter of July 20 lahan regarding the Board's you received from Mr. Carroll Cal regulation governing bank proposal to amend Regulation Y, its Mr. Callahan expresses concern holding companies. Specifically, provisions of the regulation about the proposed changes to the k holding company of its own governing the redemption by a ban securities. (12 CFR 225.6) Currently, the Board's Regulation Y any proposed redemption by a requires a notice to the Board for ity securities if the conbank holding company of its own equ eeds 10 percent of the net sideration paid for the shares exc y. The Board reviews the notice worth of the bank holding compan n would adversely affect the to determine whether the redemptio zation. Under the proposed safety or soundness of the organi ice would be required for any amendments to Regulation Y, no not n, the bank holding company redemption if, after the redemptio capitalization established by meets the standards for adequate Comptroller of the Currency. The the Board of Governors and the ndards as the minimum for safe Board generally regards these sta anizations. and sound operation of banking org ding company to make The proposal also allows a bank hol ard to these capital stanredemption of its stock without reg cumstances. First, a company may dards under two additional cir al to one percent of its net make de minimis redemptions equ Second, a company may apply to worth in any 12 month period. e redemptions in unusual the Board for its approval to mak se requests, it is contemcircumstances. In considering tho sider the overall effects of the plated that the Board would con italization of the bank holding proposed redemption on the cap company. emption provisions The proposed revision of the red mary concern with such redempemphasizes that the Board's pri bank holding company tions is the effect they have on situation, the holding capitalization. In a redemption ough the retirement of its company's capital is reduced thr this reduction in capital is capital stock and, in many cases, in the indebtedness of se rea inc g din pon res cor a by ed accompani   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Robert W. Kastenmeier Page Two  redemption. In other words, the holding company to finance the the substitution of debt in many cases, a redemption involves y. Under the proposal, for capital in the bank holding compan uce the holding comthe ability to make redemptions that red ebtedness is made contingent pany's capital and increase its ind ying the interagency capital upon the bank holding company satisf upon the belief that a standards. The proposal is premised capital may not be conreduction in a bank holding company's practice where the holding sistent with safe and sound banking minimum capital standards company's capital will be below the ptroller of the Currency. established by the Board and the Com ments on the The Board has received numerous com ll banking organizations. proposed amendment, primarily from sma ected to the fairness of The main thrust of the comments is dir tion be permitted without the proposed provision that no redemp g company has a prior approval where the bank holdin percent following the debt-to-equity ratio in excess of 30 concern that application redemption. The comments have raised a redemption situation will of the Board's capital standards in of small banking seriously limit the transferability organizations. adequate capitaliWhile the Board is concerned with Board has also recognized zation of bank holding companies, the nk holding companies in the unique function of small one-ba hip of small banking organifacilitating the transfer of owners essment of Financial Factors zations. (Policy Statement on Ass ch 28, 1980.) Because of this of One-Bank Holding Companies, Mar als involving the ownership of concern, the Board has, in propos ted liberal debt-to-equity small banking organizations, permit the 30 percent level on the ratios substantially in excess of y would direct its efforts to basis that the bank holding compan r a relatively short time reducing its debt-to-equity ratio ove t capacity will allow it to span in order that its improved deb the subsidiary bank require serve as a source of strength should assistance. modifications to the The Board's staff is reviewing in light of the Board's proposed stock redemption proposal the transfer of ownership of previously stated policy regarding Incorporation of this principle in small banking organizations. should address the concerns the stock redemption regulation the effect of the proposal on raised by the comments regarding ership of small banks. the transferability of the own   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  er The Honorable Robert W. Kastenmei Page Three  tuent's views, and his We appreciate having your consti on the Board when it takes action concerns will be presented to rd py to let you know when the 7oa the proposal. I will be hap matter. reaches a final decision on the Sincerely,  KS7.zned) DorAd 1. ttiinn  Donald J. Win Assistant to the Board  VM:DJW:vcd (#V-141) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  , Ryan Messrs. Mattingly, Bradfield Legal Files (2) Mrs. Mallardi  ROBKASTENMEIER  Action assigned to Mr. Bradfield.  N FZD DISTRICT, WtSCONSI  'BufLotNO 2232 HOUSE OFF ICE 202, 225-2906  PHoNE. AREA CcoE  WmEOFFME1 SuITE 505  Conart0 of tbe Zlnitcb fitato  119 MoNoNA AvcNur 3 MAoisoN, WiscoNsIN 5370 5206 264608, E COD A PHONE. ARE  pou5e of Iltpres'entatibrZ  COMMITTEE ON JUDICIARY TEE ON CHAIRMAN, SUBCOMMIT S AND COURTS, CIVIL LIBERTIE OF JUSTICE ON ATI STR INI ADM THE CIVIL AND SUBCOMMITTEE ON HTS CONSTITUTIONAL RIG CRIME SUBCOMMITTEE ON  Waljington, AC. 20515 July 20, 1983  /1*  Mr. Paul A. Volcker Chairman Federal Reserve Board , N.W. 20th & Constitution Avenue Washington, D.C. 20511  -) F,  . .  Dear Mr. Chairman:  CD  one of my cently received from re I ce en nd po es rr co me Enclosed is so u will find ahan, which I think yo ll Ca B. l ol rr Ca . Mr , constituents . to be self-explanatory e taken into see that his comments ar to gh ou en od go nal be Would you t me know what the fi le to d an ew vi re of se cour account during the matter? determination is in the you. rward to hearing from fo ok lo I d an n io at er id cons Thank you for your   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With kind regards, Simcerely,  RWK:m1 Enclosure  e".‘/ ROBERT W. KASTVMEIER Member of Congress  r  •  Wisconsin  Columbus 53925  P 0 Box 186, 940 W James Street  414 623-3450  C_ARROLL 8 CALLAHAN, President   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 14, 1983  stenmeier Representative Robert W. Ka s ve U.S. House of Representati Washington, D.C. 20515 Dear Bob: , of a letter dated July 13 py co th wi re he e os cl en I the Secretary, Board of n to nt se ve ha I h ic wh 1983 System. Anything you ca e rv se Re l ra de Fe s, or Govern will be appreciated. er tt ma is th in lp he do to Very truly yours, FIRST  IONAL BANK OF  commus  -e2e'‘;t4.esident Carroll g7T-irra-Ean, Pr CBC/hs Enclosure  OFFICERS P.wsident lehn K Cashier : Pres DrinJI(t `.% ent Presid Rchi4i N.D,:noc4. \'irti .1 Preder k. E  #ST VA7IONA; BANK  Vik  WiNconsin  Columbus 53925  414 Ciq  P 0 Uo 1%, No %%, Iztrnti, st;tio EC,O.e.ArncAd WIN Carroll fi 1hom.ls R E. Fted..4 k john R Hughes fr.,• kisevh  July 13, 1983  Secretary, Board of Governors Federal Reserve System Washington D.C. 20051 Re:  Docket No. R-0470  Dear Sir: Independent Bank I just received a notice from Wisconsin that the Board of association of Nadison, Wisconsin stating proposed changes in Governors of the Federal Reserve System ally eliminate holding it's reLulation which would substanti company redemption of stock. Wisconsin just recently The First National Bank of Columbus, the prime purposes of it was formed a holding company and one of so it could redeem stock. rd are adopted, all our If the changes proposed by the boa pany would be worthless and efforts in forming the holding com s to the bank and to the los the expenses incurred would be a holding company. al Bank, Columbus, Wisconsin, ion Nat st Fir the of ent sid Pre As proposed chanr,es. wa are 1007 in opposition to the Sincerely yours, FIRST-(raIONAL BANK OF C LUI1BUS  Crrd1i B. Cal. CBC/hs   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  an, President  .Of GOV ••• *,(1 • • CO • •0  - -n  4/ k, 4,, / 41  BOARD OF GOVERNORS  4.  OF THE  !•  ••  ....  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  • -k 44,.  RAL R. '•....•  August 4, 1983  The Honorable Rudy Boschwitz United States Senate Washington, D. C. 20510 Dear Senator Boschwitz: ing the Thank you for your letter of July 18 regard regulation governing Board's proposal to amend Regulation Y, its ress concern about bank holding companies. Specifically, you exp the regulation governthe proposed changes to the provisions of y of its own ing the redemption by a bank holding compan securities. 225.6) Currently, the Board's Regulation Y (12 CFR osed redemption by a requires a notice to the Board for any prop ties if the conbank holding company of its own equity securi 10 percent of the net sideration paid for the shares exceeds d reviews the notice worth of the bank holding company. The Boar d adversely affect the to determine whether the redemption woul Under the proposed safety or soundness of the organization. d be required for any amendments to Regulation Y, no notice woul bank holding company redemption if, after the redemption, the lization established by meets the standards for adequate capita er of the Currency. The the Board of Governors and the Comptroll as the minimum for safe Board generally regards these standards ions. and sound operation of banking organizat company to make The proposal also allows a bank holding to these capital stanredemption of its stock without regard s. First, a company may dards under two additional circumstance one percent of its net make de minimis redemptions equal to , a company may apply to worth in any 12 month period. Second redemptions in unusual the Board for its approval to make uests, it is contemcircumstances. In considering those req overall effects of the plated that the Board would consider the on of the bank holding proposed redemption on the capitalizati company. provisions The proposed revision of the redemption concern with such redempemphasizes that the Board's primary bank holding company tions is the effect they have on ion, the holding capitalization. In a redemption situat the retirement of its company's capital is reduced through s reduction in capital is capital stock and, in many cases, thi se in the indebtedness of accompanied by a corresponding increa   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Rudy Boschwitz Page Two  emption. In other words, the holding company to finance the red the substitution of debt in many cases, a redemption involves pany. Under the proposal, for capital in the bank holding com t reduce the holding comthe ability to make redemptions tha ebtedness is made contingent ind its se rea inc and l ita cap y's pan ying the interagency capital isf y sat pan com g din hol k ban the n upo ed upon the belief that a standards. The proposal is premis capital may not be cony's pan com g din hol k ban a in ion uct red g practice where the holding kin ban nd sou and e saf h wit t ten sis minimum capital standards company's capital will be below the Comptroller of the Currency. established by the Board and the ments on the The Board has received numerous com m small banking organizations. proposed amendment, primarily fro directed to the fairness of The main thrust of the comments is emption be permitted without the proposed provision that no red g company has a prior approval where the bank holdin 30 percent following the debt-to-equity ratio in excess of sed concern that application redemption. The comments have rai a redemption situation will of the Board's capital standards in of small banking seriously limit the transferability organizations. h adequate capitaliWhile the Board is concerned wit , the Board has also recognized zation of bank holding companies k holding companies in the unique function of small one-ban hip of small banking organifacilitating the transfer of owners Assessment of Financial Factors zations. (Policy Statement on ch 28, 1980.) Because of this of One-Bank Holding Companies, Mar als involving the ownership of concern, the Board has, in propos ted liberal debt-to-equity small banking organizations, permit the 30 percent level on the ratios substantially in excess of y would direct its efforts to basis that the bank holding compan over a relatively short time reducing its debt-to-equity ratio debt capacity will allow it to span in order that its improved uld the subsidiary bank require serve as a source of strength sho assistance. modifications to the The Board's staff is reviewing in light of the Board's proposed stock redemption proposal the transfer of ownership of previously stated policy regarding in Incorporation of this principle small banking organizations. should address the concerns the stock redemption regulation the effect of the proposal on raised by the comments regarding hip of small banks. the transferability of the owners   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Rudy Boschwitz Page Three  We appreciate having your views, and your concerns will be presented to the Board when it takes action on the proposal. I will be happy to let you know when the Board reaches a final decision on the matter. Sincerely, (F*:-. ) C.7-1!J. MrIn Donald J. Winn Assistant to the Board  VM:DJW:vcd (#V-137) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Messrs. Mattingly, Bradfield, Ryan Legal Files (2) Mrs. Mallardi,  o  Fr..;c14,aoscHwiTz MINNESOTA  ITnifeb  Zenate  WASHINGTON, D.C. 20510  July 18, 1983  rgl -1r1 (J) __A C--)  rri —0  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System 20551 W shington, D.C.  VD cip  tomm C.0  Paul: the I am writing you to express my firm opposition to on Y. Federal Reserve Board's proposed amendments to Regulati st 1, I understand that comments can be submitted until Augu 1983. ially, I believe that the proposed amendments would substant and unnecessarily, restrict the ability of small, familyany owned bank holding companies to redeem bank holding comp -stock. As you know, many family-owned community banks provide a 336 in Minnesota -- form bank holding companies to ders dies, market for their stock. When one of the sharehol shareholder's the bank holding company redeems the deceased s outside the stock so that it need not be sold to investor liquidity to family or community. This redemption provides taxes, and the deceased shareholder's estate to pay estate allows the family to maintain control of the bank. e the The proposed amendments would effectively eliminat ially market for bank holding company stock and substant ers. First, prohibit the transfer of stock among family memb ent of allowing redemptions equal to no more than one perc prohibits the bank holding company's net worth effectively ent redemptions of any significance. Second, the 6 perc percent consolidated capital-to-asset ratio test and the 30 where debt-to-equity ratio test would eliminate redemptions -a bank holding company has a significant amount of debt d even though the amount of debt is consistent with soun management judgment. unnecessary. Finally, I believe the proposed amendments are ral Reserve The current regulations require that the Fede ent or more Board be notified of any redemptions of 10 perc a redemption of the holding company's net worth. If such l safety and would jeopardize the holding company's financia effect, veto soundness, the Federal Reserve Board can, in ons impose the redemption. I believe the current regulati proposed sufficient regulatory safeguards to make the amendments unnecessary.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rt.%  Honorable Paul Volcker July 18, 1983 Page Two  I believe that family-owned community banks provide a great service to their communities and the country as a whole. Government regulations should not unnecessarily limit the ability to maintain family ownership. Therefore I urge you to withdraw the proposed amendment limiting redemptions of bank holding company stock. Thank you for your cooperation in this matter. contact me if I can be of assistance. Si cerely,  , it  Rudy Boschwitz RB:tbm cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  William Wiles, Secretary  Please  August 3, 1983  The Honorable Claiborne Pell United States Senate Washington, D. C. 20510 Dear Clairborne: . putting my I wanted to thank you for remarks at Bryant College in the Congressional pcord.  Your incoming letter was inadvertently  misplaced and I did not have a chance to express my appreciation until now. Sincerely, .  ub4  CO:DJW:vcd bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)  •  Aucuet 3, 1SX-3  The UcricralJe ten rrereicb Letlre of F.epretiehtntives Vaslinston, r. C. 2CS15 rear rr. Frdrcichs Crtairran Volcl,er tap ael:ed *se to respond to your outline of lctter vf July lte 1E3, in which you reqLestee an nd ziril cLrrcnt reetrictions on tLe ronitrl-ing ectivities of titers', or thrift tcleins ccriaLics tLat wctld Financial , rropcued urchcrcce by ti-e, AeLinietration. Institutions Lczesulaticn txt cf 15E3. I nn Lleasce to provide the enclosed talle wbich lation of cozrzlrea, In cart form es you recluccted, tte re?u ,ozed ncia- anlArg activities ureer exit:tin law arie tLe frof reFtricticre isloccd' bill. Ve ttve reecei r ctteclory of are. Kcv ties till woule irpose new reEArictlors in certain pletcee, to roCify tis tcLle in any ,cre's 'tif weole 11-le Ucecsircd. Plecatc let re knou If I may he of any furtLer t‘c::ietenec. fincertly,  (Signed) Donald I. Winn ronale J. Vinn Ateistfmt to the Icrd  Ilicicsure JWaLlsrsh V-13E CC Log 185   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Regulation of Nonbanking Activities of Bank & Thrift Holding Companies under the Financial Institutions Deregulation Act of 1983  Nonbanking activities permissible for bank holding companies  Current restrictions remaining  Current restrictions eliminated  Current restrictions altered  Bank holding companies could continue to engage in activities that FRB determines by order or regulation to be closely related to banking.  Bank holding companies would be authorized to engage in activities that FRB determines by regulation to be "of a financial nature," in addition to the following expressly authorized activities that are currently prohibited:  FRB would be authorized to prescribe limitations on the conduct of activities consistent with financial, managerial, safety and soundness, and other criteria.  - general insurance underwriting and brokerage activities - real estate investment, development, and brokerage (limited to 5% of primary capital) - operating a mutual fund; underwriting and selling shares of a mutual fund (through a separate subsidiary only)  I  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  New restrictions imposed  In prescribing permissible activities, FRB would be required to promote competition between bank holding companies and all other companies engaged in such activities.  Within one year of formation of a securities affiliate by a holding company, all subsidiary banks or thrifts of the  -2 Current restrictions remainin9  Current restrictions eliminated - dealing in and underwriting municipal revenue bonds (through a separate subsidiary only)  Current restrictions altered  New restrictions imposed holding company would be required to cease any activity authorized for a securities affiliate.  - operating a nonfailing thrift institution - any activity authorized as of July 1, 1983, by the FHLBB for multiple S&L holding companies (other than real estate investment and development). FRB approval of individual proposals to engage in nonbanking activities  Prior FRB approval of proposals to engage in nonbanking activities would be eliminated.  Criteria for FRB evaluation of individual proposals to engage in nonbanking activities  Public benefits test (i.e. balancing of public benefits, such as increased competition, gains in efficiency, against adverse effects, such as conflicts of interests   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  60-day prior notice to FRB of proposed activities would be required; FRB could issue a notice of disapproval of a proposal.  -3Current restrictions remaining  Current restrictions eliminated  Current restrictions altered  New restrictions imposed  Decreased or unfair competition, undue concentration of resources, and conflicts of interest criteria would be replaced by "any practice or arrangement that may adversely affect the independence or impartiality of an affiliated bank in the provision of credit or other services or the terms on which such credit and services are made available or the availability of such credit."  In considering financial and capital adequacy, FRB would be required to give due consideration to financial resources and capital of others engaged in similar activities and could not impose capital standards higher than those required by state or federal regulations applicable to other companies engaged in such activities, unless circumstances warranted a higher capital level.  and undue concentration of resources) would be eliminated, but FRB could consider certain adverse effects of a proposal in deciding whether to disapprove an activity. Hearing requirement would be eliminated. FRB could disapprove an activity for financial or managerial reasons.  4  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4Current restrictions eliminated  Current restrictions remaining  Current restrictions altered Safety and soundness criteria would be altered from "unsound banking practices" to "any material adverse effect on the safety and soundness or the financial condition of an affiliated S. nk or banks."  Right of competitors to seek judicial review of FRB decisions not to disapprove bank holding company proposals to engage in nonbank activities would be eliminated.  Judicial review  Supervision and examination   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FRB's authority require reports to examine bank companies would unchanged.  to of and holding be  FRB's authority to require reports of nonbank subsidiaries generally would 5-I to kinds of reports that a publicly held corporation would be required to file with SEC, except where circumstances warranted additional information.  New restrictions imposed  -5Current restrictions remaining  Current restrictions eliminated  Current restrictions altered  New restrictions imposed  FRB is directed "to the extent feasible" to limit examination of nonbank subsidiaries by utilizing reports of other supervisory authorities and if possible by focusing examinations on activities of nonbank subsidiaries that affect the financial condition of an affiliated bank. Jurisdiction  Transactions with affiliates   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A company that owns both a bank and a thrift would continue to be subject to jurisdiction of both FRB and FHLBB. Restrictions applicable to thrifts on transactions with affiliates would be eased and same restrictions applicable to banks would apply.  New restrictions would be imposed on transactions with affiliates (e.g., all covered transactions between a bank and its holding company affiliates must be on nonpreferential terms).  .; -6Current restrictions remaining  Current restrictions eliminated  Current restrictions altered  New restrictions imposed  State authorized nonbank activities  States would not be prohibited from authorizing state banks to engage in activities not permissible for bank holding companies.  States may not prohibit affiliations of national banks or federal thrifts with companies engaged in activities permissible under BHC Act or S&LHC Act, respectively.  Definition of "bank"  "Bank" would continue to encompass any institution that accepts demand deposits or transaction accounts and engages in the business of making commercial loans. Federally insured thrifts and certain other institutions (e.g., Edge corporations) would continue to be exempt.  "Bank" would be redefined to include any bank that is federally insured or eligible for federal insurance (if it accepts deposits other than in a fiduciary capacity)  S&L holding companies   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S&L holding companies would be authorized, subject to FHLBB review, to engage in activities authorized by FRB for bank holding companies, including specifically export trading companies, securities  Unitary S&L holding companies would be subject to restrictions applicable to multiple S&L holding companies (which essentially parallel those of bank holding companies).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7_  -  Current restrictions remaining  Current restrictions eliminated affiliates, and the operation of an insured bank (currently not permitted for multiple S&L holding companies).  Current restrictions altered  New restrictions imposed Real estate investment and development authority of multiple S&L holding companies would be limited to 5% of primary capital (currently unlimited). FRB, rather than FHLBB, would have jurisdiction over securities affiliates. S&L holding companies would be required to provide 60 days prior written notice of activities to the FHLBB (currently no notice required for unitary S&L holding companies); FHLBB may apply same criteria for reviewing individual proposals as apply to bank holding company proposals.  -8Current restrictions remaining Service corporations   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Current restrictions eliminated  Current restrictions altered  New restrictions imposed Bank and S&L service corporations would be required to limit their activities to providing clerical, data processing, and other administrative services to other depository institutions and could no longer deal with the public.  512 CANNON BUILDING WASHINGTON. D C 20515 (202) 225-4921  BEN ERDREICH `6TH DISTRICT ALABAMA COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  DISTRICT OFFICE  105 FEDERAL COURTHOUSE BIRMINGHAM, ALABAMA 35203 (205) 254-0956  COMMITTEE ON GOVERNMENT OPERATIONS SELECT COMMITTEE ON AGING  Congress of the United c tates 11one of Repusentattes illashington, D.c. 205)5 July 18, 1983 The Honorable Paul A. Volcker Chairman Federal Reserve System 12th Street and Constitution Avenue, N.W. Washington, D.C. 20551  cn -:, --ri r" .-7-..., ---,1 rn - r7-• i-'n --= c-, rr. ; c._  CC) ca c.a.., Lc= r-  ••••eho w••'• r  7.=/.• ......  In order to help facilitate action by Congress, I believe that the Board should clearly outline what current restrictions the measure lifts, what restrictions remain in place, and what restrictions are altered by the legislation. It would be most helpful if these specifications could be listed side-by-side. Although the Treasury Department has included a Section -by-Section analysis with its draft submission to Congress, I strongly believe that this additional outline is necessary. Further, the Board, in my view, is the appropriate agency to handle such a review. I appreciate your past willingness to assist Congress in matters of this nature and thank you in advance for your attention to this request.  Ben Erdreich Member of Congress BE:pmm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r7- c.-1 -,-, .-,  --rri ". -1..  I appreciate knowing of your support for the draft bill prepared by the Treasury Department to authorize new nonbanking powers for bank and thrift holding companies. In my view, this legislation is extremely important and should receive prompt consideration by Congress.  Sincerely,  c.o c:::• , 2 c=)  NJ --  Dear Mr. Chairman:  With warm personal regards,  -n rn L.-7n rn 7D  C/3.  rr  2:) ....7., a., E;e;  •••••-• t  CD C:)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 3, 1983  The Honorable Pete Wilson United States Senator Room 6S9 880 Front Street 92188 San Diego, California Dear Senator Wilson: Thank you for your letter. of July 19 supporting the request by PV Financial, Modesto, California, for an exemption from the lending limitations imposed by section 23A of the Federal Reserve Act, 12 U.S.C. § 371c. The Board of Governors appreciates having your views on this matter, which is currently pending before the Board. Your comments will be made part of the official record and will be given full consideration when the Board makes its final decision. I will be, happy to let you know when the Board reaches a final decision. Sincerely,  Donald J. Winn Assistant .to the Board  muilmooxpxx PN:VM:CO:DJW:pjt (V-140) bcc: Virgil Mattingly Pam Nardolilli ,/ Mrs. Mallardi/ G.C. Log 191 Legal Records (2)  JESSE HELMS, N.0 CHAIRMAN 8013 DOLE, KANS. RICHARD G LUC.,AR. D. THAD CO5fINA.4. kiISS RUDY BOoCHWITZ. MINN. ROGER W JEPSEN. IOWA PAULA HAWKINS, FLA. MARK ANDREWS. N OAK. PETE WILSON. CALIF. ORFUN G. HATCH, UTAH  WALTER D HUDDLESTON, KY. PATRICK J LEAHY, VT EDWARD ZORINSKY. NEBR. JOHN MELCHER, MONT. DAVID H FAVOR. ARK. DAVID L BOREN, OKLA. ALAN J DIXON. ILL. HOWELL HEFUN, ALA.  Action assigned to Mr. Bradfield.  Uflud gRates g5enate COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY  -n rm rn r= :T  -r1 Cr> -11 -- czl rri •• "  (0 Cc?  gi)  0•••• 40. ••••••••  The Honorable Paul A. Volcker Chairman, Federal Reserve Board 20th Street and Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Chairman: This letter is to inform you of my concern regarding an Agricultural Credit Corporation application by PV Financial. Presently, it is pending with the Board of Governors of the Federal Reserve System. Specifically, there are two parts of the application being reviewed. One part is now in the Controller's Office in the legal department and is being reviewed by Suzanne L'Hernault. The second segment is with the legal staff in the Federal Reserve Board and is being reviewed by Pam Nardolilli. It is my opinion that this is not an average, run-of-the-mill application. Special attention to this matter would appear necessary because of California's agricultural interests and development. I am grateful for your consideration in this matter. Sincerely,  PETE WILSON United States Senate PW:sw cc: Clare Berryhill, Director of Food and Agriculture, State of California Governor George Deukmejian   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7• =3 • C=> —T1  WASHINGTON, D.C. 20510  July 19, 1983  0C=1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 2, 1983  The Honorable Frank Annunzio House of Representatives 20515 Washington, D.C.  •  Dear Mr. Annunzio: During the hearing on July 20 you requested that I furnish additional information on Federal Reserve expenditures. For your information, I Am pleased to enclose hearing a copy of the material / am furnishing for the r P  record. Sincerely,  ;ZPaul A.  Enclosure CO:pjt bcc:  Ann DeBeer Mr. Allison Mrs. Mallardi (2)  Insert page 51  (July 20, 1983 hearing before House Banking)  g information Chairman Volcker subsequently submitted the followin for inclusion in the record of the hearing:  $1.1 billion, Federal Reserve System expenditures in 1982 totalled on an average a 39.6 percent increase from 1979, or 11.8 percent ably less than annual basis. This rate of increase is consider hearing the 148 percent figure cited by Mr. Annunzio during the in federal and is less than the 48.4 percent rate of growth billion government outlays during this same period. The $1.1 from ts figure represents total expenses before reimbursemen services are the U.S. Treasury and revenue earned from priced ion from the deducted. In 1982, the System received $76 mill services, U.S. Treasury and earned $422 million on priced close to half of total System expenses. in 1982 Approximately $500 million of Reserve Rank expenses average was for salaries and other personnel expenses, and million was salary per capita was $20,202. A total of $14 4.3 percent. spent on travel -- an increase over 1981 of only to the category The 1982 "other" expense figure appears to refer nse captures "other building expenses". This category of expe g, maintenance payments to outside firms for contract housecleanin to our buildings; of elevators, vault doors and locks, and repair it increased only 4.6 percent from 1981 to 1982. period has The expenditure pattern during the 1979 to 1982 as they have been extraordinary for the Federal Reserve Banks institutions had to adjust to new relationships with depository . The Monetary and adjust operations to the pricing of services tionships -- a Control Act resulted in 4,500 new account rela 1980, Reserve 73 percent increase in only two years. Up until rate of close Bank employment had been decreasing at an annual ining to 3 percent from 1974, and unit costs had been decl of the approximately 2 percent per year. Following passage slightly and Monetary Control Act, total employment increased ices declined productivity fell off as volume of priced serv staffing levels. faster than Reserve Ranks were able to adjust ines in employIn 1982 and projected for 1983 we again see decl made the ment and improved productivity as Reserve Banks have Act. adjustments brought about by the Monetary Control   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .*0o • of Govt4;•.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  August 2, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Walter: Your two recent letters raised a number of questions about monetary policy particularly as it relates to expectations or forecasts of growth in GNP and of related variables. You noted a seeming discrepancy in that the central tendency of FOMC members' forecasts for nominal GNP in 1984 could not be obtained by adding the central tendency of forecasts for real GNP and prices. Basically, the reason for this is that the mixes of nominal and real GNP and prices that were projected by the individual members of the Committee can vary enough one from the other that they lead to central tendencies for each of these variables that at the limit appear to be mutually inconsistent, as was the case in some degree for 1984. In addition, as you know, the growth rates of real GNP and prices will, because of the mathematics involved, always differ by a small amount from the growth rates for nominal GNP (the discrepancy being given by the product of growth rates in real GNP and prices). You also asked how the central tendency forecasts for real growth in 1983 and 1984 compare with real growth during the first and second years of past recoveries. As compared with the average of five previous postwar recoveries in the 1954-1975 period--eliminating the exceptionally rapid recovery period beginning in 1949 and the limited recovery of 1980--the central tendencies show growth somewhat lower in the first year of the current recovery, and a shade higher in the second year. These real growth rates, and accompanying projections for unemployment and prices, should be interpreted as representing the FOMC's view as to the most likely pattern of economic developments, given the monetary and credit targets for 1983 and 1984 and the overall economic environment including fiscal policy and conditions in domestic and international financial markets. An even   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Walter E. Fauntroy Page Two  better economic performance, should it evolve, consistent with sustainment over time of economic growth and proaress toward reasonable price stability would of course be both desirable and acceptable. Sincerely,  444 SHA:pjt (#V-145 & V-121) bcc: Mr. Axilrod Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  „di  GEORGE HANSEN, IDAHO RON PAUL, TEX. BILL McCOLLUM FLA. BILL LOWERY. CALIF. JOHN MILER, IND.  WALTER E FAUNTROY, DC,CHAIRMAN STEPHEN L NEAL. N C. DOUG BAGNARD, JR. GA. CARROLL HUBBARD, JR., KY. . BILL PATMAN. TEX. BUDDY ROEMER. LA BRUCE A MORRISON, CONN. JIM COOPER TENN THOMAS R. CARPER, DEL. H2-109 ANNEX NO 2 WASHINGTON, DC 20515 (202) 226-7315  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-EIGHTH CONGRESS  WASHINGTON, D.C. 20515  -,-1  , \. I(' 1  July 25, 1983 11, rj;  co  -n rn 1=,  co  C=  r-  CD  C.I.7  C--—r 1  rri ..-.1 CD  mi 1 1171 rr-":::: (--, rr-,  . ......„. c C= C: : :  INJ Cr)  c-In -n J rn ,Z  -.-_> :---  ' : cp .,..... •••••41.•  ,  2.7.. ---  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551  ..._ 1..... 4.4r.  Dear Paul: In accordance with the unanimous consent agreement of the Committee on Banking, Finance and Urban Affairs, I would like to tender to you the following questions: First, I have a question about the central tendencies of the FOMC's 1984 forecasts. The FOMC is projecting real GNP growth with a central tendency of 4 to 4-1/2 and inflation of 4-1/4 to 5. However, when these are added up to get nominal GNP, the results are 8-1/4 to 9-1/2, compared with the stated central tendency of 9 to 10. Indeed, a 10% nominal GNP growth rate cannot be attained given the central tendency of forecasts for inflation and real growth. What is the explanation for this discrepancy? Second, how do the central tendencies of FOMC forecasts for real growth compare with real growth during the first and second years of real growth in past recoveries? Third, what is the status of these forecasts? Are these growth, inflation, and unemployment rates the conditions which the FOMC would like to see, and which it will be trying to bring about through its policies? Or are these the conditions which the FOMC is afraid will happen, despite its best efforts to foster faster growth and lower inflation, because of other factors, such as large deficits and weak international conditions?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I look forward to your responses to these questions. Sincerely yours,  Walter E. Fauntroy Chairman  ?. c,"  -----i,i 6 rn ...._  7,0 c.c.  STEPHEN L NEAL, N t... DOUG BARNARD JR., GA. COROLL HUBBARD, JR., KY. BILL PATMAN TEX BUDi.Y ROEMER. LA BRUCE A MORRISON, CONN. JIM COOPER, TENN THOMAS R CARPER, DEL. H2-109. ANNEX NO. 2 WASHINGTON. DC 20 515 (202) 228-7315  BILL McCOLLUM. FLA. BILL LOWERY. CALIF. JOHN HILER, IND  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-EIGHTH CONGRESS  WASHINGTON, D.C. 20515  July 7, 1983 ••  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551 Dear Paul: As you might imagine, I read with some degree of concern the story in this morning's Washington Post which suggested that the Federal Reserve might well tighten credit within the next week.  '  I raise this issue with you for several reasons. Rates have already begun to rise without any apparent assist from the Federal Reserve. My fear is that intervention by the Federal Reserve to raise rates further would inadvertently stifle the recovery. You may recall that during hearings held by this Subcommittee in December, 1982, a number of witnesses suggested that the considerable slack in the economy as the result of the continued high levels of unemployment would vitiate the renewal of inflationary pressures. Indeed, it was stated that there would be no renewal of inflation over the next five years due to the enormous heavy downward momentum on inflation that comes from high unemployment. Another witness pointedly said that there was simply no empirical evidence that one should worry that a high rate of growth in the economy will cause inflation when unemployment was still 8%. [Alternative Anti-Inflation Policies to Reduce Unemployment before the Subcommittee on Domestic Monetary Policy of the House Committee on Banking, Finance and Urban Affairs, 97th Cong., 2nd Sess. 103 (1982)1 At a subsequent hearing on June 1, 1983, Preston Martin testified before this Subcommittee that the Federal Reserve would support the recovery. In response to a specific question from me, he said that a 6-7' real growth for this calendar year was a little bit stronger by 1/2 to 3/4 of a point than was previously predicted but that we should applaud, not worry about such a growth rate at this point. More importantly, he said it was monetary policy's job to accommodate that higher rate of recovery. [Unpublished transcript, Hearings on Unemployment and Inflation before the Subcommittee on Domestic Monetary Policy of the House Committee on Banking, Finance and Urban Affairs, 98th Cong., 1st Sess. 61 (1983)]   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,  Chairman Volcker  - 2 -  June 7, 1983  My concerns, therefore, center around whether or not the Fed has reversed the position which Preston Martin enunciated; whether there has been some major change in the economic circumstances which warrant such action; and what the potential impact rising rates would have on the international debt crisis. I am also concerned with the impact that any actions might have on mortgage rates, and on medium term rates necessary for purchases such as automobiles and heavy appliances. Housing and consumer spending are key components of this recovery, and I fear that higher rates will stop them in their tracks. If, therefore, some constraint is necessary, I would like to discuss this with you prior to any actions with a view of seeking some mechanism which would not interfere with the upward movement of the recovery. Perhaps some constraints on unproductive lending could be encouraged. I would be pleased to discuss this with you at your earliest convenience. Perhaps several members of the Board and the FOMC could join us.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With kindest personal regards, I am Sincerely yours,  Walter E. Fauntroy Chairman  iziiuiuu (mu ulituiteu Not for Quotation or Duplication   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HEARINGS ON  UNEMPLOYMENT  Wednesday, June  AND INFLATION  1, 1983  House of Representatives, Subcommittee on Domestic Monetary Policy, Committee on Banking, Finance  and  Urban Affairs, Washington, D.C.  Committee Hearings of the  U.S. HOUSE OF REPRESENTATIVES  OFFICE OF THE CLERK Office of Official Reporters  NAME: HBA152030 1396  . n  PAGE  Mr. FAUNTROY.  Mr. Martin, there have been persistent  1397  questions as to the type of recovery that the Fed would like  1398  to see happen.  1399  foster recovery with real growth in the fist year or so  1400  comparable to past recoveries, 6 to 7 percent.  1401  risk of modest rebound of inflation from the current 3 to 4  1402  percent rate.  1403  On the one hand the Fed could be trying to  On the other hand, the Fed could  Even at the  be trying to foster a  1404  recovery with a slower rate of real growth the first year or  1405  so, say, of about 5 percent, in order to hold inflation at  1406  those rates.  1407  obviously has implications for employment, I wonder if you  1408  would tell the committee which of these kinds of recovery  1409  the Federal Open Market Committee, and  1410  like to see happen; and, specifically, if real growth this  1411  year turns out to be taking space at 6 to 7 percent, at that  1412  rate, would the Federal Open Market Committee view that as  1413  an overheated expansion which should  1414  an appropriate or proper response?  1415  Since the choice of these two courses  Mr. MARTIN.  you personally, would  be restrained?  Or as  Mr. Chairman, a 6 or 7 percent real growth  1416  for this calendar  1417  would all—we all as citizens would applaud.  1418  percent real growth would mean, I think, that unemployment  1419  would decrease more rapidly than the numbers we were  1420  previously reviewing.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  year would  be one in which I think we A 6 or 7  If 6 or 7 percent could be  rAUL  KAITE: RBA 152030  OG  • 1421  accomplished while inflation was kept within the 3 to 4  1422  percent rage, it would seem to me that that would  1423  salutary outcome.  1424  I think our problem is that the economy has a momentum of  1425  its own that is affected  1426  fiscal policy, affected  1427  be a very  by monetary policy, affected by by these international developments.  And we all are in a sense adjusting to what we are finding We are finding a little bit  1428  out there in the markets.  1429  stronger recovery by half a point or three quarters of a  1430  point than some of the consensus forecasts were just a few  1431  months ago.  1432  accommodate that higher rate of recovery.  1433  have not been constrained  1434  inflation's renewal, as I have testified in the previous  1435  question.  1436  I think it is monetary policy's job to And so far we  by leading indicators of  So I think my answer would  be, the recovery is getting a And  1437  little stronger, and it is our job to accommodate that.  1438  so far we don't see we have to pay the price in rekindling  1439  inflation.  1440  Mr. FAUKTROY.  Mr. Keehn, you have given us, as I  1441  indicated at the outset, a very pessimistic picture of  1442  unemployment, of the employment outlook in your district.  1443  You have discussed the declining population.  1444  talked about the closing, and  1445  emphasis I think the demolition, disposal of factories and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  You have  you have noted with some  .•  G  OF THE  •0 *co *0 -n •  •  •  BOARD OF GOVERNORS .•  FEDERAL RESERVE SYSTEM  LLJ  WASHINGTON, 0. C. 20 551  [ [  .. %!56.  • RAL RES • • •..• • •  August 1, 1983  The Honorable Arlan Stangeland House of Representatives Washington, D. C. 20515 Dear Mr. Stangeland: Thank you for your letter of July 21 regarding the on governing Board's proposal to amend Regulation Y, its regulati ern about bank holding companies. Specifically, you express conc on governthe proposed changes to the provisions of the regulati ing the redemption by a bank holding company of its own securities. Currently, the Board's Regulation Y (12 CFR 225.6) mption by a requires a notice to the Board for any proposed rede conbank holding company of its own equity securities if the the net sideration paid for the shares exceeds 10 percent of ews the notice worth of the bank holding company. The Board revi adversely affect the to determine whether the redemption would r the proposed safety or soundness of the organization. Unde required for any amendments to Regulation Y, no notice would be ing company redemption if, after the redemption, the bank hold established by meets the standards for adequate capitalization the Currency. The the Board of Governors and the Comptroller of minimum for safe Board generally regards these standards as the and sound operation of banking organizations. to make The proposal also allows a bank holding company capital stanredemption of its stock without regard to these t, a company may dards under two additional circumstances. Firs percent of its net make de minimis redemptions equal to one company may apply to worth in any 12 month period. Second, a ons in unusual the Board for its approval to make redempti it is contemcircumstances. In considering those requests, effects of the plated that the Board would consider the overall the bank holding proposed redemption on the capitalization of company. isions The proposed revision of the redemption prov with such redempemphasizes that the Board's primary concern company tions is the effect they have on bank holding the holding capitalization. In a redemption situation, retirement of its company's capital is reduced through the ction in capital is capital stock and, in many cases, this redu the indebtedness of accompanied by a corresponding increase in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Arlan Stangeland Page Two  the holding company to finance the redemption. In other words, in many cases, a redemption involves the substitution of debt for capital in the bank holding company. Under the proposal, the ability to make redemptions that reduce the holding company's capital and increase its indebtedness is made contingent upon the bank holding company satisfying the interagency capital standards. The proposal is premised upon the belief that a reduction in a bank holding company's capital may not be consistent with safe and sound banking practice where the holding company's capital will be below the minimum capital standards established by the Board and the Comptroller of the Currency. The Board has received numerous comments on the proposed amendment, primarily from small banking organizations. The main thrust of the comments is directed to the fairness of the proposed provision that no redemption be permitted without prior approval where the bank holding company has a debt-to-equity ratio in excess of 30 percent following the redemption. The comments have raised concern that application of the Board's capital standards in a redemption situation will seriously limit the transferability of small banking organizations. While the Board is concerned with adequate capitalization of bank holding companies, the Board has also recognized the unique function of small one-bank holding companies in ng organifacilitating the transfer of ownership of small banki zations. (Policy Statement on Assessment of Financial Factors this of One-Bank Holding Companies, March 28, 1980.) Because of concern, the Board has, in proposals involving the ownership of y small banking organizations, permitted liberal debt-to-equit the ratios substantially in excess of the 30 percent level on to basis that the bank holding company would direct its efforts reducing its debt-to-equity ratio over a relatively short time allow it to span in order that its improved debt capacity will re serve as a source of strength should the subsidiary bank requi assistance. The Board's staff is reviewing modifications to the proposed stock redemption proposal in light of the Board's of previously stated policy regarding the transfer of ownership iple in small banking organizations. Incorporation of this princ concerns the stock redemption regulation should address the sal on raised by the comments regarding the effect of the propo the transferability of the ownership of small banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .a  The Honorable Arlan Stangeland Page Three  We appreciate having your views, and your concerns will be presented to the Board when it takes action on the proposal. will be happy to let you know when the Board reaches a final 1,3cision on the matter.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Donald J. Winn Assistant to the Poard  VM:DJW:vcd (V-144) bcc:  Mr. Mattingly Mr. Bradfield Legal Files (2) Mr. Ryan Mrs. Mallardi  ' 2??n-112 loct4ia§ 152e LONGWORTH HOUSE OFFICE BUILDING  ARLAN STANGELAND 7TH DISTRICT, MINNESOTA COMMITTEES: AGRICULTURE PUBLIC WORKS AND TRANSPORTATION  22:7, ConLress of thc ¶1nitc  WASHINGTON. DC 20515 (202) 225-2185 M-F BUILDING 103 CENTER AVENUE MOORHEAD, MINNESOTA 58560 (218) 233-8831  tts  FEDERAL BUILDING 720 ST GERMAIN STREET ST CLOUD. MINWOTA 58301 C11112) 246 a-0710 co  tone of lltprcantatitns shinton, D.C. 20515  c (----' DIAL FREE 11MBE , e, QN /ANNE OTA) ;777 O " n00 4p4-377  July 21, 1983  rN.) CJ1  Mr. Paul A. Volcker Chairman e Board of Governors of th Federal Reserve System st Street Constitution Avenue and 21 Washington, D.C. 20551  740' Z-4::  -r"--.1 -el 1 r:,-, .-/-,  . • i :::7r.1  C9  .r-  c=  -.7z .  c./3  ..... •••:,  C'CP ....---1  23 Cr7  .--c  -0-  -1  Dear Mr. Chairman: l Reserve Board's proposed ra de Fe e th at th e ar aw me e I have beco a serious impact on privat ve ha ll wi Y on ti la gu Re to l bankrevisions osed letters from my smal cl en e Th s. nk ba l al sm to owners of strict of Minnesota attest Di h nt ve Se e th in ts en tu cial ing consti osed letters in the offi cl en e th e ud cl in se ea Pl this fact. the final rulemaking. record to be considered in are by my banking constituents d se es pr ex ns er nc t co an in The predom adversely affect private ll wi s on ti la gu re ed os op s as that the pr ng bank holding companie ti mi li by s nk ba l al sm p by ownership of e continuity of ownershi th ng ti mi li , es cl hi ve ng y estate planni ty interests of privatel ri no mi of y it il ab et rk ma reducing the well as affecting employee as k, oc st y an mp co g in ld owned bank ho own such stock. stock option plans that to ask nstituents, I would like co ss ne si bu l al sm my into On behalf of e concerns and take them es th ew vi re ly gh ou or th d to that the Boar making. I would also like le ru l na fi e th in n io at mment full consider Regulation Y after the co on on si ci de l na fi e th be advised of period is completed. tesy and cooperation. Thank you for your cour /  With waIm reagrds, I am   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sizzcerely,  J  (  X  Kit  Arlan Stangeland Member of Congressc----  /1  ilicNifage Natioaa!Elam_ PAUL, MN 55109 • (612) 2700 EAST SEVENTH AVENUE • NORTH ST.  770-2341  SINCE 1910 July 14, 1983  Docket R-0470 Secretary Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Sir: osition to the proposed I wish to register my absolute opp stock redemptions. change in Regulation Y regarding be imposed by the Board Because of the minimum standards to ersely affect private ownerthis proposed regulation will adv ge corporations will be ship of small banks in that only lar It will thereby limit the capable of purchasing said banks. concentration and hence a market for such banks and create a being in the hands of very monopoly of financial institutions limit the continuity of small groups. It will furthermore marketability of ownership and will markedly reduce the bank and bank holding minority interests of privately owned company stock. or eliminate the employee It will furthermore adversely affect ding company stock and stock option plans that own bank hol routinely taken for thereby remove incentives which are granted by most corporations. Respectfully yours, Donald W. Herrick, M.D. Chairman  DWH:je   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •.1yry  . •  • 4, • ."‘  j• 71  ,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  '  •  ,  .•  1.P• • • . •  I  •  The First National Ban  of Barnesville  54-2201 E BARNESVILLE, MINNESOTA 56514-0218• TELEPHON 218-3  .‘.  t.e  $7.)44 ,(SS3  July 7, 1983  rve Bank Board of Govenors of the Federal Rese Docket R-0470 ECTY., Board of Govenors Federal Reserve Bank Washington, D.C. 20551 Gentlemen: osed change in Regulation Y I am writing in opposition to the prop the proposed revisions regarding stock redemptions. As I decipher effect on young men like it appears that it will have a detrimental holding company. me interested in getting equity in a bank r 11.- hrlt fhe hanle. hr1r1inroomn...ny thatible for me to increase had a stock redemption. This made it poss ing company, and therefore my small portion of ownership in the hold and women with situations the bank. If the regulations change, men establish equities and bank sililar to my own will not be able to and women who have substantial ownership will only be available to men financial holdings. regulations as they relate to I beg of you not to change the present stock • .emptions.  s•  ely yours,  1J  eth E. Just / K Pre ident K&3/ml 'CC:  Senator David Durenberger . Senator Rudy Boschwitz Representative Arlan Stangeland  1NC. AM-CAN INVESTMENT,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P. 0. BOX 160 A MOORHEAD, MINNESOT Phone 233-6191  July 13, 1983  jin , L. 1 0  of Governors Secretary, hoard stem Federal Reserve Sy 20551 Washington, DC  „NI_ 1S  );,,  Dear Sir: tion DOCKET NO. K-0470 Purchase or redemp 1) 4( 5. 22 N IO CT SE es PkOPOSED of its own securiti y an mp co g in ld ho by a bank the have reviewed that we ta da e th nk It appears from Y relative to ba on ti la gu re in on revisi acted, proposed d create, if en ul wo s on ti mp de re ently holding company ll agreement curr se ybu e th to m mpany. a serious proble of our holding co rs de ol kh oc st e th an to ensure in effect for structured is t en vi ce jr a( holding buy-sell Our ownership of the e th r fo on ti will revision orderly transi proposed ur yo el fe Ne holding company. small the of y it il ab e th ir impa regulatory seriously undue thout wi on ti nc fu to company interference. INC. A1-C/N INVESTMENT,  RE:  Dennis W. Troff President nh cc:  n Stangeland epresentative Arla hwitz Senator Rudy Bosc nhurger Senator Dave Dure  56560   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FARMERS STATE BANK of Dorset  •  MARK D. HEWITT President  ,4  July 13, 1983 land Congress Arlan Stange Building 1526 Longworth Office 20515 Washington, D.C. Dear Mr. Stangeland: ve ent letter that I ha mm co a of py co a g e I am enclosin of the Federal Reserv s or rn ve Go of d ar Bo e sent to th ges in Regulation Y. any, an ch ed os op pr ng ni er Comp System conc ion Bank and Holding ll Mi 0 $1 l al sm a of As owner uld be unfair and Wo on ti la gu re ed ivate I feel that the propos 41.-••••••1111 omic hardship on pr on ec e ac pl d an y ar ss unnece ction owners of small banks. osed change of Se op pr is th at th el Furthermore, I fe ngerous precedent da a ts en es pr re ) 225.4, Subd. (b ency may prohibit a ag ry to la gu re l ra gal whereby a fede ting a standard, le rtain— i uc nd co om fr on ti za ets ce me banking organi on ti za ni ga or less that corporate practice un regulatory agency. e th by d he is bl ta this standards es u could provide in yo lp he y an te ia ec pr I would ap matter. Sincerely,  Mark D. Hewitt President  P.O. BOX 112 0 PARK RAPIDS, MINNESOTA 5647 21 (218) 732-72  NEVIS BRANCH P.O. BOX 305 7 NEVIS, MINNESOTA 5646 (218)652-2265 4 77.7,1.1.;NUrtNgt:;;;71,  IF  •..-,...-•••••••••-•••••  jarl,172E 1.1  c. tatE _113an,ce  II () IsC)X IJAliK HAPIUS. MN b4u/U I  1).  fleo/J2 1 ti)  'it VI:,  :July 13, 1983 board of Governors of the Federal Reserve System 20551 wahington, D.C. id : Pruposud Revision of Rug. Y Gentlemen: I  cy,ud Rifq. Y.fJuction Y/5.4, im vn it ii ij to exple., my .Along opply.Won to the prup  company of it (h) (.onc(-rning purchatJu Of redemption by u hank Holding own t,ecurities. ous impact on private owners I feel that the proposed Regulation will have a seri lation will severely limit the of small Banks, such as myself. The proposed regu ning vehicle and will limit use of the Bank Holding company as an estate plan to use stock redemptions as continuity of ownership. My heirs would not be able p. a means of paying estate taxes to retain family ownershi e of minority ownership of Ihe proposed Regulation will markedly reduce the valu to establish a market through able be not will BHC the as k, Stoc any Comp ing Hold bank . redemptions. The use of ESOPS will also be effected proved adequate as the Board has ons mpti rede ling of hand em syst ent pres the I feel any. cau!'ud burdumume debt to the Holding Comp kv, the right to ruject. rudemption., if it ing Companies will be able to take Under the proposed Reg. few small One bank Hold of stock redemptions. advantage of a standard, legal corporate practice otdud Rug. Y Suction 225.4 (Said. u) Prop of n ctio reje urge gly Urun 1 , mary .,um In LuwAny unnecessary hardship on small bank owner. lhank-you. Sincerely,  74„Ait/ mark D. Hewitt President  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  v r t. :  A 1\1 fC  af"--;  111. 1.4 ."  E. ) PS  •  .1 -4 • •.  •  #4N1 • ••••,t  •i  14•'  Mi '  218 - 1.54:1  1.,1 July 12, 1983  id•id  cH  ..=:: 1.1 -t ..r ..1•7.-_-!frfl••••• I CI  ‘;1! 1  I  1......,  1 ,1 1 i 1 4 1 -  d, Congressman The Honorable Arlen Stangelan ng 1526 Longworth Office Buildi 20515 Washington, D.C.  t: '  Rc:Fedcral Reserve Bank Section 225-4(b) Stock Redemption  :u ! i  . •. ,  r ; t.  •  al A  iei '  4 1 a  ti i l L  fil L e l 1141 It 04  Dear Congressman Stangeland:  N ] iLk  #.i, rrri.!/4'4‘. ,:.: 1 .4  cr. 'I i v.• t tt et... ts I I: (-1 41 t1 7_1.; U• •..,tn i c,v44 -;I, . •4;  1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  g making Federal Reserve is contemplatin The proposed changes that the my present l have a tremendous impact on on bank holding companies wil way dual bank holding companies. The and future plans for my indivi ation and e to file a complete new applic they propose it, we would hav posed rules order to abide by their new pro form new holding companies in y unrealistic and impractical tel ple com is it n, tio ima est my and changes. In to have to do such a thing. g ability of a small bank holdin the ate min eli ld wou nge cha The proposed ld also reduce the holding wou It ck. sto ty ori min its ket company to mar se capital into its subsidiary rea inc to ck sto l sel to y lit company's abi e to redeem would make it almost impossibl bank. For estate planning, it ks were many holding companies for ban the stock for estate purposes( tect the estate). In addition, pro to ne alo son rea one s thi formed for plans. y for employee stock ownership it would also cripple the abilit s that I have with my other ent eem l agr sel buythe e, tim t At the presen tical. stockholders would become imprac l to assets and no more than 30% ita k cap ban (6% ia ter cri ed pos The pro their y) would have to be met under pan com g din hol the in ity equ debt to y places ld be much tougher and in man wou al rov app and s nge cha ed propos holding o threatens every small bank als al pos pro The e. ibl oss imp almost . I request that you contact the hip ers own its and ion nat the company in h such major changes and take a oug thr g hin p rus sto to e erv Federal Res be. ious the proposed changes would ser how t jus see to it at k longer loo  FACILI I  Al Kl  11  k MI14111  (Ilf.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Stangelnad  Ju;y 12, 1983  -2-  eck into d I would urge you to ch an it of ty li ga le e th I also question that is not legal. g in th me so g in os op pr t no they are mption. this to be sure that concerning stock rede 0 47 -0 #R et ck do e th se po I urge you to op Thank you. Very  yours,  ohn D. Carpenter Chairman of the Board NorKitt Bancorp, Inc. Northwestern State Bank of Halloek, Minnesota, Subsidiary Bank  Sic& eR,„,/,  ate'  HAWLEY, MINNESOTA 56549  July 14, 1983 Congressman Arlan Stangeland ng 1526 Longworth Office Buildi Washington, D.C. 20515 Dear Arlan: that I sent to the Board of Enclosed is a copy of a letter Board expressing my concern e erv l Res era Fed the of ors Govern regulations which would, some e erv l Res era Fed in nge cha a over ect our bank, as well as most aff ely ers adv , ure fut the in time e that, somehow, they can be hop ld I wou ks. ban ity mun com small on of this kind of regulation ati ent lem imp the t tha ced vin con is inappropriate. would be very much appreciated. ter mat s thi on e anc ist ass r You  Ver  uly yours,  ec(4a1,4 Paul Tellefso President PT:ba Enclosed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PHONE (2181 483-3361  csa/t ciktfrr, Owm..exi  &m,h"  ••  •  .  •••  r••••  .  • r-.10  AA „  • -••• .••••••••••••  ; 1 5 t s e V l O k a 9 0 OIA 5G549 S E N N i N , Y E HAWL  ,i,....radol. • 1 1:141,4,, -• —  •  July 8, 1983 Secretary overnors Board of G e System v r e s e R l a r e Fed .C. 20551 D , n o t g n i h s g company Wa n i d l o h g n i d gar egulations re r n i s e g n a h d c securities RE: Propose y t i u q e s t i f redemption o Dear Sir:  at ndi:-Ates th i y n a p m o C d an will have ur Anderson s h e t t r a A t S y b d e y t e i v r e Un A recent su tion coming f banks in th c o u d r e e r b m u t n a h t e osed ty of by 1990, th at the prop h h the majori t t i e w v o , i 0 l 0 e 6 b 9 T dropped co ',hat change, m ,;iyA, u ' i d d e l m r T ; o e L o l uch t in lhu smal ns would do m o i t a l u g e r er change in re is anoth he e h t h c i h w n n i e t n a small tow eve, provid i i l e 1 ( b e t I a c o , l h c hi ld Our bank is nk, both of w ves. I wou a r b e s d o e d n w t o i y t l a th independent one of part it; corrununity f th o o h t t a e e d c i e v h r t r nk kind of se on my death o sell the ba p u r e t h a t h i t e k o n t i ary hate to th cTendently ecome nec,2ss d b n i d l u e o om w ., .c t i o r t ners, that not believe ny company, o i o d d l o I h , k e n s a a b c her to a multi ors. In eit ers, and the t m s o e t v s n u i c e s d t i i s k, weathy out t cE the ban e r e t n i t s be 1,erved. d that the be l u o w , e l o h a w each stock community,as g n i w e i v e r of he sent method e r p e perior to t h u t s t a r h a t f e s m i , s o especially wn merit o It seems t s t t a i h t n o s , e l n a i s l ide ropo estricted gu y. redemption p r d n a y r a r t i ding compan rb l a o h f k o n a n h o i e t z p i ado um s mall to medi s e h t t c e f af   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ourb, Vervr*ti)ily y //  e6  son Paul Tellef President PT:ba  73-3301 PHONE (210i 48  /  ';we  AJ-eideid Paa),  FIRST NATIONAL HANK FERGUS FALLS, MINNESOTA  TELEPHONE, AREA CODE 218-739 4461  56537  ).")k t-) FIRST OF FERGUS  July 14, 1983  Congressman Arlan Stangeland 1526 Longworth Office Building Washington, D.C. 20515 Dear Congressman Stangeland: ivision (b), will have a Proposed Regulation Y Section 225.4, Subd T would ina company. serious negative impact on our one-bank hold the Baord of Governors urge that you utilize your influence with this change in Regulation Y. of the Federal Reserve System in opposing Sincerely,  II R. 0. ylOHNSON Presient  ESTABLISHED AUGUST 20, 1872   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  110 YEARS OF BANKING SI RVICE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Jf.90 (v. (...%  012  AT 1 MN( VAT LAW P.O.Box 617 200 FM Center Moorhead, Minnesota 56560 (218) 233-1331  . 41(7-q.:74 ) ; July 11, 1983  The Honorable Senator David Durenberger 353 Russell Senate Office Building Washington, u.L. 20510 The Honorable Senator Rudy Boschwitz 2317 Dirksen Senate Office Building Washington, D.C. 20510 The Honorable Representative Arlan Stangeland 1519 Longworth House Office Building Uashington, D.C. 20515 Gentlarren: The Federal Reserve Pcard:proposes to amend Regulation Y gover ning bank holding companies and prohibiting them from redeeming their own stock. I enclose a copy of my letter to the board pursuant to its reque st for cement. Obviously, I am opposed to this proposed amendment and feel it will damage the smaller banks in America. The majority of the banks in Minnesota are owned by indiv iduals, one or more of whom work in the bank. They are a vital part of small town America and always interested in the welfare of their communitie s. Banking is not a truly lucrative business and a large part of the profi ts that are earned must be retained in the bank business to enable the capital base of the bank to arc.' as depnsitc crcs., ecause of h-,avy tax 1d ;stata and Federal), a load which is much heavier at times on banks than on other institutions, one bank holding companies are used as a vehic le to acquire a bank and payoff acuisition loans through that vehicle. The small corporations of America use the power of stock redemption as a method of enabling them to buy out stockholders who are retiring or wish to sell. It is an excellent estate planning vehicle. The proposed amend ment to Regulation Y would deprive small holding oampanies and owner s of small banks of this right.  GE(.4.90 CV. COL On AT TOKNLY AT LAW P.O. Box 617 200 FM Center Moorhead, Minnesota 56560 (218) 233-1331  ••  Page -2ult eral Reserve Board, this will res As stated in my letter to the Fed limit the number of possible and ck sto the of ue val the in ion in a reduct t multi-bank holding companies and efi ben ily mar pri l wil It s. purchaser . ial institution in the hands of a few anc fin the te tra cen con y all eventu rease eral Reserve Board supports an inc Fran my reading it appears the Fed the IMF ts investment in the IMF to enable in the United States Governmen ping countries who so happen to be to lend money to the worlds develo ks. Such loans will, of course, ban ter cen ey mon or maj the m fra botrowers ter banks who have mac'eforeign loans. cen ey mon the on re ssu pre the reduce money center banks and limit the the p hel to t wan to s ear app Fed The stay duct their businesses so they can small banks in their powers to so con ity owned banks. in operation in the future as commun C and Comptroller of the Currency are It is my understanding that the FDI ancial lawability of the bank. If al responsible for supervising the fin guide lines which govern nation has er oll ptr com the h hi(j too are dividends erve similar rules. Now the Federal Res has C FDI the t tha e sur am I and banks company. dividends received by the holding wants to further restrict the use of , can of the opinion that this, in effect This is not a simple matter. I am t I am ll banks. I want to tell you tha have a serious consequence to sma o want you to know that I als I k. Ban al ion Nat a of rd Boa Chairman of the the redemption of my stock which to ng ati rel ent eem agr an o int d have entere the Federal Reserve Board. In by ed rov app n bee y usl vio pre has agreement interest in this matter which I had ial anc fin the e hav not do I ds other wor ng ongly that this is a very bad thi str y ver l fee I r, eve How . ago r yea a y the small banks of America. I ril ula tic par and ss ine bus g kin ban the for can give in this matter because it men tle gen you p hel any e iat rec app ld wu se r reaching and attempting to exerci ove is e erv l Res era Fed the me to ns sca king industry. Most small banks are absolute control over the entire ban We they have to go out of business. n't are y the If d. age man l wel tty pre going in this country otherwise you are need a viable small banking system erest in a control of funds who have no int ial anc fin the in ple peo e hav to ancial viability. particular communities future or fin   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ve  trul ,  Hugo V. Olson Attorney at Law HVO/rf   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C.)/U.90  V. 0/10/2  ATTORNEY AT LAW P.O Box 617 200 FM Center Moorhead, Minnesota 56560 (21ft) 233-1331  •  July 11, 1983  Document R-0470 Federal Reserve Board of Governors Federal Reserve Bank Washington, D.C. 20551 Gentlemn: Your proposal revision of Regulation Y has came to my attention. I am absolutely opposed to the change and think it is dangerous and certainly dilatorious to the banking system of this country. my question at this time in the issue involved is the following: "Is the Federal Reserve Board attempting to limit the possible purchases of banks to multi-bank holding companies?" Most small banks are well capitalized and are owned and controlled by small groups of individuals or by a one bank holding ccmpany which is owned or controlled by one or more individuals who are usually mc_Ilibers of the business community where the bank is located. Because of state and federal tax laws it is difficult to accumulate money in the hands of an individual to use to buy a bank. Other businesses or other businesses operating - as corporations in the United States have the right and power to redeem their own stock in order to transfer ownership. The boards proposed regulation deprives the small bank holding company of this right. It, in effect, says to the small bank holding company that you cannot operate or redeem stock in the fashion suggested except by paying dividends to your stockholders and paying additional taxes to the various taxing entities. A further effect of your proposals to limit (if not deorive) an individual of his right to own or acquire a bank are the limitations it imposes on hi .ability to dispose of such bank. It limits the possible purchasers of such bank stock substantially and benefits multi-bank holding conpanies or money center banks who have the resources to purchase such bank and take its ownership out of the community where it is located. Again, I want to express my opposition to what the board proposes. I want you to know that I have an interest in a bank. I am Chairman of the Board of The First National Bank of Barnesville. I also want you to know that we have (with the board approval) carried out a partial redemption of my stock. I will eventually be out of the business one way or another but the proposal in my opinion is foolish and, as I have said before, dilatorious to the banking business.  J/ j<) c1/.1 Orlon ATTORNEY AT LAW P0.Box 617 200 FM Center Moorhead, Minnesota 56560 (218)233-1331  Page -2You now exercise a certain amount of con trol in requiring that the holding company obtain the consent of the board before redeeming any stock and under those circumstances I do not understand why the board wants the amendment it proposes particularil y since there appears to be a serious question as to your legal aut hority to impose the proPosed change. Very truly yours,  Hugo V. Olson Attorney at Law HVO/rf   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NM,  lilt( AN IlltISAAN t.gs ull•I 1•1‘ I PSI $.14  blt)t 141 1 4 /1 11. ,ufillt si•lt S•Ank •11411 it•  ISb$I A  WAYNE f IIIERIEEIAUME •DAN.steR'NE A(I •RitAN  OMEN T PATE FIRST ViCE PRESIDENT PI151•111 11•.11 'MST St P•UI  Rufil/. llcoNso  CliNTON  7 ) MINNESOTA BANKERS ASSOCIATION ii) APOLIS, MINNESOTA 55402 IP) 332 BAKER BUILDING • MINNE  C  V•ON )01IN LA III ••1 (1,A01111  VI(( potsaueNi  I mit vo% %I•ft Shill .A.A.VCAA,  JAMES R JORSTA0. TREASuRER cinztks SPATS SAM KATAKID  MARGARE  (612) 330-7851  July 14, 1983  4  I  P Joyi-e,0  The Honorable Arlan Stangeland 1526 Longworth Office Building Washington, D.C. 20515 Re:  Proposed Revision and Update of Regulation Y  Dear Congressman Stangeland: Regulation Y The Federal Reserve Board has announced proposed revisions to Your office has no which will seriously impact private owners of small banks. eved that doubt received numerous calls and letters on the issue. It is beli rship of small banks the proposed.regulation will adversely affect private owne ing in that it will seriously limit bank holding companies as estate plann etability of vehicles, limit the continuity of ownership by reducing the mark k, as well as minority interests of privately owned bank holding company stoc stock. adversely affectinc employee stock option plans that own such ents prepared As a means of acquainting you with the issue, enclosed are comm a Minneapolis firm. by a senior consultant with Bankers Resource Center, Inc., has been extended I believe the comment period with respect to the proposed rule ce you deem appropriate to August 1. Our office would appreciate whatever assistan . with respect to effecting Board reconsideration of its proposal Thank you. Very truly yours,  4„1 hn S. Jajkson eneral Counsel JSJ:jab Enclosure cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Herbert A. -Lund Galen T. Pate  GOEI  I INSURANCE O(PAI1i4TERANAGE  COMMENTS ON THE PROPOSED REVISIONS TO REGU LATION Y Introduction The Board of Governors of the Federal Reserve System (hen? inartvr the "Uoard") is proposing a change to Regula tion? that does HuL appeur Lo be authorized by statute and would arbi trarily set a supervisory precedent of potentially far-reaching proporti ons. Moreover, the new regulation would represent a clear and present threat to the continuation or private ownership of commercial banks. What would appear at first glance to be a rather insignificant change to an existing regulation, will only increase the ease with which the large banking organizations may eventually acquire the small, privatel y owned banks, leaviny only a few megabanks from which the public may seek banking services.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  over  UH Mu,/ 19, 1983, the Board issued a nStice of proposed revisions to Regulolion Y. This regulation represents the Uoard's linplementution of Ole Uunk Holdiny Company Act of 1956 as amended (12 U.S.C. 1841 et seq.) and the Change in Bank Control ctS 1978 (12 U.S.C. 1817 (j)). The notice states th.it (h.! proposed revision i5 part of the Uoard's progrom to improve ond simplify its regulations. In fact, the summary language used. in the notice would lead une to believe that the revons as proposed are innocuous unouyh, so thol those allectud or potentially affected should be in favor of, or not object lu, revisiI ns. This reasoning SCQMS valid except for the amendment being plopused lu suction 225.6 of Regulation Y entitled "Corporote Practices", which is the subject of this paper. fhe Current Regulation Currently, section 225.6 speces the notification requirements for u bunk holding company (hereinafter "BHC") planning to purchase or redeem its own ,,harvs. Essentially, a OHO is required i0 110iiry its Federal Reseive Ualik at least. 45 days prior to a planned purchase or redemption of its OW11 stock if the purchase price is equal to 10 per cent or more or the cowpony's net worth. The only way the Board can prevent such a transaction is through the successful issuance of a cease and desist order, wherein the proposed transaction is deemed to constitute an unsafe or unsound practice, or the tronsaction would violate an applicable law, rule, regulation or order, or any condition imposed by, or written agreement with, the Uoord. The current regulation was implemented in 1976 primarily to prevent excessive releveraging of BHCs in conjunction with a change hi control. Wien such releveraging effectively circumvented the Board's power to approve or deny 1111C lorfnations. The purpose and necessity of this section WjS diminished with passage of the Change in Bank Control Act of 1978. This low (Jove the Uoord existing UHC, direct authority to deny a proposed change in control of whether or not a stock redemption is involved.  The Proposed Regulation The proposed revision is under a new section number 225.4, and hos Iwo subsections. Subsection (a), entitled "Bank holding compony policy and operations", codifies the policy of the Board that a BHC should serve as o source of strength for its subsidiaries and conduct its bank and nonbonk operations in accordance with sound banking policy and practice. Also, subsection (o) describes the provision of teIank Holding Company Act thol authorizes the Uourd lo order divestiture of a nonbank subsidiary or activity under certoin It is not this subsection, but subsection (b) of the adverse circumstances. new 225.4 that is objectionable. 111 subsection (b), entitled, as before, "Purchase or redempt ion by a bank holding company of its own securities", the prior notification requirements have been replaced by a blanket prohibition on stock redemptions by a BlIC, unless it complies with the minimum standards in the Board's policy statement on capital adequacy. Exceptions would be permitted by the Uoord only in unusual circumstances or if the redemption is de minimus. The officio' language proposed for section 225.4 follows:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  'cf‘  SECTION 225.4  CORPORATE PRACTICES  (a) Bank holding compan y policy and operat holding company shall ion. (1) A bank serve as a source of fi strength to its bank su nancial and manageri bsidiaries and shall al co nduct all of its op tions in accordance with erasound banking policy and practice. (2) Whenever the Board believes an trol of a nonbank subs activity or conidiary constitutes a serious risk to soundness, or stabil ity of a bank subs safety, idiary of a bank pany, and is inconsis ho lding comtent with sound ba nking principles or poses of the BHC Act, the purthe Board may requir e the bank holding to terminate the acti company vity or to terminat e control of the su as provided in sectio bsidiary, n 5(e) of the BHC Ac t. (b) Purchase or rede mption by a bank ho of its own securiti lding company es. A bank holdin g company may not redeem its equity secu purchase or rities, unless: (1) the gross cons ideration paid fo when added to the ne r the securities, t consideration' pa id tions during the pr for all similar tr eceding 12-month ansacpe riod, is not more million or 1 pecent than $10 of the bank holding company's net worth, ever is less, or which-  (2)  the bank holding co mpany has:  (1) consolidated assets of $1 billio and after the purc n or more, hase or redemption , Its consolidated ital -to-assets rati primary capo Is at least 5 pe rcent; (ii) consolidated assets of $150 mill billion, and afte r the purchase or ion to $1 redemption, its co primary capital -tonsolidated total assets ratio is at least 6 perc ent, or  (iii) total banking less, and after th assets of $150 mill e purchase or rede ion or mption, (A) the primary ratio of the bank capital -to-total holding company assets (consolidated) is cent or at leat 6 per-  1 Fo r the purposes of this section, "net consideration" Is consideration paid the gross by the company for all of its equity purchased or redeem securities ed during the peri od minus the gros ation received fo s considerr all of its equity securities sold du period other than ring the as part of a new issue.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (U) the primary capital -to-total d'J',Vt ) c ratio of each subsidiary bank of the holding company is at least 6 percent and the debt -to-equity ratio of the parent bank .holdiny company (nonconsolidated) is no more than 3U percent; or (3.) the bank holding company obtains the prior approval of the Board for the redemption or purchase on the basis of unusual circumstances. Objections From a banker's point of view, there are substantial objections to subsection (b) as proposed. First, there is a serious question as to whether the Board is authorized by law to implement this subsection, which, if issued and upheld, represents a dangerous precedent whereby a federal regulatory agency may prohibit a banking organization from conducting a standard, legal corporate pc,Ictice unlets that organization meets certain standards k.,lubiiited by the reuulatory agency. Secondly, because of the minimum standards to be imposed by the Board, the proposed regulation will adversely affect private ownership or small banks, in that it will severely limit BHCs as estate planning vehicles and will limit continuity of ownership; it will markedly reduce the marketabliity of minority interests of privately owned BHC stock; and it will adversely affect or eliminate employee stock option plans hereinafter "ESOPs") that own BHC stock. This will, of course, place a substantial economic hardship on private owners of small banks, and they will be forced to file new BHC formation applications with the Federal Reserve System as an alternative to a stock redemption. The reasons fur arriving at the afore— mentioned conclusions are set forth in the ensuing paragraphs. (I)  Absence of Statutory Authority  proposing the new section 225.4, the Board is relying on 12 U.S.C. 1844(b), which refers to Board authority to implement the Bank Holding Company Act of 195G, and 12 U.S.C. I818(b)(3), which authorizes the Board to issue cease and desist orders against BHCs. Cease and desist orders are primarily issued in response to unsafe or unsound practices, or violations of laws, rules, and regulations. It appears that subsection (a) refers to 12 U.S.C. 184 11(b), and subsection (b) refers to 12 U.S.C. 1818(b)(3). 111  The Board, through the new section 225.4(b), is contending it has the authority to prohibit a standard corporate practice by a BliC IF the BlIC does not met!I certain standards promulgated by the Board. By direct huplication, the Board is saying that it considers a stock redemption to be unsare or unsound whenever a BHC does not meet specified standards as determined by the Board.  Li 0  Ui  gt  Apparently, the Board has used the case law history or the Office of the Comptroller of the Currency (hereinafter "0CC1, wherein the OCC declared that the practice of not retaining certain insurance income in a bank to be unsafe or unsound and Issued regulations outlawing such activity. The OCC requires that income earned from the sale of credit life, health, and accident insurance sold in conjunction with the making of loans in a bank must remain In the bank.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  l'he Board, in its bspk supervis ory and regulatory ca pacity, has IICVVV belo proposed or issued a regula le tion that bans a legal corporate practice unle specified standards arc me ss t. While the Board may contend it is ielying I egal support from the case on law of the OCC's regulati on prohibiting all in ance practice determined to surbe unsafe or unsound, th e Uoard is HU.t. propos to prohibit a practice cons ing idered by it to be un safe or unsound. To contrary, the Uoard wants the to prohibit a standard , acceptable (..urporo lice whenever a certain ca tv procpital standard, as dete rmined by the Uoard, Lie ing met. This is an hnportant di is not stinction to draw be issued by the OCC and that tw ee n lh e re gulation being proposed by the Board. On this basis the Board should be preclude alone, d from issuing the prop osed amendment. (2) Establishes Dangerous Precedent IF the Board succeeds in is suing this amendmen t,. a dangerous preceden established as it rela t will be tes to supervision or banking organilations Vuderal Reserve System by the and other federal bank regulatory agencies. allowing a stock redemption Uy not to take place unless minimum capital standa maintained, the Board is rds are contending in effect that capitol or J UHC be reduced as a result of should nol a conscious act ion of VIC management. On th of it, such a restriction e face does not appear unreas onable, since a stuck re tion reduces capital and dempfinancial strength. However, does it not lo follow that the 'Board ma gically y similarly want to pr ohibit payment of divi UHC unless minimum capi dends by a tal standards are main tained? After all, the of dividends also reduce payment s capital. And, if th e debt: to equity relati an issue, the Bo ol:ship is ard could also be expect ed to prohibit any in unless minimum capital st crease in debt andards are maintain ed. Similar prohibit also be established to ions could include corporate sa laries and other cont expenses, as well as th rollable e structure of assets an d liabilities. In other words, a pr ecedent would be esta blished whereby the prevent a banking orga Dotard could nization from conducti ng its business (i.e. management) unless it take over met specific standards established by lhe Uuard. statutory reference used by the Board in [he proposing section 225A(b appear to authorize su ) does not ch outright control over banking organiza reasonable thought pr tions. A ocess must lead one to conclude that if the boar not have the authorit d does y to place outright controls on dividends, de asset and liability st bt levels, ructures, and other management prerogatives, certainly does not ha lhe board ve the authority to so restrict stock redemption s. (3) Minimum Standards _ _ _ _ . . . .. ar _ _e In : _wi _ _ _co _ _ _ns _ is _ . te Po _ nt_ _th . ._ . li .. cy. on _ _ _ Ca . _ pita_l AdetvaLy Even if one could so mehow make a reasonable argument that the board the statutory authorit dues have y to issue the proposed revision to Regulation minimum standards impo Y, the sed by the Board are so restrictive that most stock redemptions by typical a small BHC normally co uld not take place.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  document lhe Uuard states in the the following:  that issued (Jr public cumnwnt  it pitipasys  mpany from purchasing or le' co g in ld ho nk ba . . to prohibit fec1 tu the es, unless, after giving ef ti ri cu se ty ui eq its with deeming bank holding company complies the n, io it is qu ac or Capital redemption ard's Policy Statement on Uo e th in s rd da an st the ininimuni Adequacy. thority of the UuJid's au al leg or ss ne le ab on as re th the ard is Without taking issue wi ncert with the UCC, the Uu co in ed su is cy ua eq ad Cs (conpul icy on capital nimum standard for small Ull mi the o int re mo e at or rp capital pluposing to inco n) than is included in the io ll mi 50 $1 an th ss le Federal solidated assets of idelines issued lu yach gu cy ua eq ad l ta pi ca e Th adequacy guidelines. part, the following: Reserve Dank state, in a  es Capital Adequacy Guidelin ll . The yuidelines program wi 1. Application of guidelines ing ate member banks and bank hold St d an al on ti na to y pl s generally ap wever, for holding companie Ho s. si ba ed at id ol ns co a companies on , the capital .guidelines ts se as ed at id ol ns co in n io under $150 mill ly, provided: will apply to the bank on not engage directly or es do y an mp co g in ld ho e th ) (1 g significant leveraye; in lv vo in ty vi ti ac ny kl an nb indirectly in any no neral the parent is held by the ge of bt de t an ic if gn si no ) and (2 other e met, the holding company, ar ns io it nd co e es th 1r the public. to pose additional risks to ly ke li ss le is l, ua eq g in things be rable nk is generally felt: to be sepa ba the of n io it nd co the bank, and Under these conditions, any. mp co g in ld ho the of n io it nd will from the co rposes or capital analysis pu For y an mp co g in ld ho the therefore, t to the imposition of capec bj su and ed at id ol ns co be generally not os. usually lower consolidated rati ital guidelines on what are ptable capital to assets ce ac m mu ni mi a at th n ai pl ex The guidelines go on to However, the board G. C is 011 l al sm a of k ban relationship for a subsidiary t would be essenen dm en am ry to la gu re ed os op pr r thei apparently realized that demptions by small re k oc st t an ic if gn si ny ma g in it were aptially ineffective in prohib rd For the subsidiary bank da an st l ta pi m ca mu ni mi e eill UHCs if only th equity criterion at the pal to bt de a d de ad d ar Bo e th uity plied. Therefore, erned. flie JUZ debt to eq nc co e ar s on ti mp de re k oc st a UHC UHC level, insofar as at the board requires fur th el lev the is , ed os op pr This is in minimum standard, as r For te af ar ye h ft el tw e th by et to demonstrate it can me th the Board to Form a 011C. wi d le fi n io at ic pl ap an th conjunction wi in onalyziny J UHC's or ct fa a e il wh , ty ui eq to !he relationship of debt the capital adequacy of t par a ly it ic pl ex t no is overall financial condition, small or large UHCs. er th ei to te la re ey th as Board th debt guidelines issued by the ry financial condi t ion w i to ac sf ti sa in be to ed er t Many UHCs are consid e board certainly has nu Th %. 30 of ss ce ex in r Fa to equity percentages ceeding 3U% is on unsafe ex l ve le ty ui eq to bt de a previously intimated that   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  oi tnisound condition. If such ,were the Cabe, many of the WIC applications recently approved by the Board would constitut e approvals of Ulles with debt to equity levels considered to be unsafe or on hi the cohteAt ol the proposed revisions. Thus, incorporatio n of the debt to equity standard appears unreasonable and unwarranted.  In this same vein, the Board has added an alt ernative standard for to meet, which is a con  a small UHL solidated capital to assets rel ati onship ol 6. Such a standard is also not a part of the cap ital adequacy guidelines lor sma ll UllCs. Yet this alternative standard would nevertheless have on effect similo r to the debt to equity standard. This is tru e because a small UHC with sig nificaia leverage would not normally be able to meet the 6Z consolidated percentag e uf capital to assets standard, unless its subsidiary bank had a capital ratio substantially in excess or 6%, or even Tot. HI fac t, ir UHC a 's subsidiary bunk had a 7% capital to assets percentage and the bunk sto(I. was being call ied at book value by the parent UHC, the UHC's debt to equity position could not exceed I4Z without the consolidated capitol to assets relationship falling to below 6%. Thus, the inc orporation of a 6% consolidated capital to assets ratio for small BliCs as an alternative minimum standard app ears Unrea sonable and unwarranted.  (4)  Adverse Effect on Private Owners hip of Small Banks  With the highly restrictive min imum standards being proposed by the board before a stock redemption may be transacted, the new regulation po e u significant threat to private ownership of small banking organizuliun s. For example, many BHCs are formed for estate planning purposes, wherein controlling ownership by a given Fam ily can be more readily contin ued upon the death of a family member. The BHC normally has the capacity to burrow money to redeem OHC shares owned by the deceased person to pay estate taxes and/or to provide for orderly distri bution of estate assets. Larger correspondent banks arc usually willing to len d an amount up to IOU' of the book value of the subs.idiary bank stock owned by the BHC. Also, normally there is very little market for BHC stock owned by minority investors, except for the willingness and capacity of the BHC to purchase such stock. Often, the UHC has ready access to Funds by bor rowing against its subsidiary bank stuck and, unI ike most individuals, has the privilege and riyht as a lax shelter to service the associated debt with pre-tax dollars. In addition, there are many buy -sell agreements, wherein the BHC is contractually obli cja1c,.. d to purchase shares of one or more sharehold ers under certain conditions. Without the ability to redeem sto ck, a significant hardship could be placed WI continuity of BHC ownership by a given family, and potential mar ketability of minority interests will be substanti ally reduced. As to the effect WI ESUPs, JS OH integral par t of such programs, ESOPs have a con tra ctu al riyirt to put. their BHC stock back to the BHC at a predetermined price in rel ation to book value. Without this put option, the attractiveness of ESOPs buying DIIC stuck is substantially reduced, sin ce a ready market for the stock does not otherwise exist.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  —7  Conclusion In revising the stock redemption section of Regulation Y 4.1') plupU',Cd, the Uoard would be clearly exceeding its supervisory and regulatory aulholity over banking organizations and would be contributing lo the demise LA pi ownership of commercial banks. ihe baHkilly comnunity must not only understand the 1mph icat Iuui' iiid lt.WJe"' quences of the proposed regulation, IL must take immediate and decisive action to prevent issuance of the regulation. The Board very seldom makes wflerial changes to, or recinds, a proposed regulation issued (or public commit:lit. Hierefore, objections to the proposed regulation must be made on both an individual and national scale, including communication with conyres ,i lona! representatives, especially those on banking commillecs. Only then will there In' a chance to convince the Board not to revise. the regulation iH in inv unwarranted manner as proposed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -8-  I1Th 1r7 E3Le..ow la)Mirk, OU7D4tPU ily b&yin and tame4tRa 0&40  PAUL W. GANDRUD, JR. Cashier PI 1114 *. GAN1/14 U1) Autlilus WILLIAM MOBERG Assistant Vice President ROBERT M. KILEY Assistant Cashier  PAUL W. GANDRUD President  BENSON, MINNESOTA 56215 (612) B43.4411 July 15, 1983  RUSSELL HANSON Chm. — Exec. Vice President  JEANETTE SANDVEN Pers. Officer KAREN EVENSON Loan Officer  NORMAN L. ANDERSON Vice President DONALD C. MINCHOW Vice Presid.nt  Congressman Arlan Stangeland 1526 Longworth Office Building Washinion, D. C. 20515 Re:  Docket No. R-0470  Dear Congressman Stangeland: ings on the proposed revision I am writing you to comment and express my feel Reserve Board. I um concerned ral Fede the by ed ider cons g bein Y on lati Regu to on by a Bank Holding Company with Subsection B entitled "Purchase or Redempti dards to be imposed by the of its Own Securities". I feel the minimum stan small banks, in that it will Board will adversely affect private ownership of and will limit continuity of severely limit BHCs as estate planning vehicles ility of minority interests of ownership; it will markedly reduce the marketab ct or eliminate employee privately owned BHC stock; and it will adversely affe stock option plans.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r of a small bank, $50,000,000 In our one-bank holding company which is an owne company stock and it in deposits, we have no public market for our holding minority shareholders that would seriously inhibit and limit the market for own bank holding company stock. icient authority to regulate I believe that the regulatory agencies have suff and sound operation without capital requirements with banks and to assure safe Reg. Y. I also seriously the authority they are proposing in their revised law to inplement this subquestion as to whether the Board is authorized by dangerous precedent whereby section, which, if issued and upheld, represents a organization from conducting a federal regulatory agency may prohibit a banking organization meets certain a standard, legal corporate practice unless that standards established by the regulatory agency. thoughts and do everything I hope that you will give consideration of my possible to prevent this regulatory change. Sincerely, \.1  0..., r,.  President PWG/js  MEMBER FEDERAL DEPOSIT INSURANCE CORPORATION  Lakeland State Bank 568 14025 NNESOTA 56472 • 218/ PEOUOT LAKES, MI 56442 SLAKE, MINNESOTA BRANCH OFFICE CROS  D, President  GLENN S. BIRKELAN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 14, 1983  Stangeland Congressman Arlan fice Building 1526 Longworth Of 515 Washington, D. C. 20 Stangeland, n ma ss re ng Co ar De the Federal at th ce ti no ed iv ce . I recently re ts on revision of en mm co g in iv ce re Reserve Board is rship of small ne ow e th to ng ni ai I sincerely Regulation Y pert s. ie an mp co g in ld k ho tion, as probanks by one-ban la gu re e th in ge chan s believe that the to the small bank l ta en im tr de ry ve posed, would be retatinn that rp te in my is t I es. ented to allow in the United Stat em pl im s wa y an mp ing co e the one -bank hold als and allow th du vi di in by d ne ow be small banks to ock. transfer of the st t the change in ns ai ag rk wo to u I would urge yo deral Reserve Fe e th by ed os op now pr Regulation Y as cooperation. ur yo r fo ch mu ry u ve Board. Thank yo // -. Yourts,yery truly,  GSB/mf   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CAKVER COUN I STATE BAN  Chaska,MinFICSOta 552 Phone 612-4,18-21C July 11, 1983  •17 `) oft I 4 t2 ft .p VP 17\k Cr4  SECRETARY Board of Governors of the Federal Reserve System Washington, D. C. 20551  *x5 is? 7 •<‘‘ 6  12  DOCKET NO. R-0470  9.  Dear Sir:  1V  I object strongly to the proposed revision of the stock redemption section of Regulation Y. The future of most small town banks would be severely curtailed with the passage of such legislation. Our small 25 million bank has just coalpleted the holding company transformation, buy-sells are in place, insurance finding purchased and so forth. This procedure is the only vehicle I had ao .majority stockholder to affect an orderly and economical trailsfer of ownership over a 10 to 15 year period. The only other solution available to me would have been an outright sale of the bank. I was extremely reluctant to sell to a large outside congloblcrate or holding company as our bank had been in our family control for 120 years. I also had to consider my own estate planning and the careers of two other bank officers that participated with me on the holding company fortzation. Without the present Minnesota holding company rules and regulations I could not have accomplished what had to be done. Hence, I object very strongly to the proposed revision of the stock redewption section of Regulation Y.  Very truly yours,  ,7a).Led, • wc421k4a41 671;vz-g" D. W. DuToit Jr. pairman cc:  Bankers Resource Center, Inc. .Bank Holding Company Association of Minnesota  enc.  Men-)ber ECIC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • tlY /  :  .„  74 r" , 4'..4  r  :  Off like 3 : 1- f  •c4.11';  t •  :70  r  4, It: 4:4rk.1.16; • 4( C.  July 14, 1983  Representative Arlan Stangeland 1519 Longworth House Office Building Washington, DC 20510 Dear Representative Stangeland: Small independent banks are faced with total extinction! It is bad enough to have the DIDC Committee totally deregulate banks. This is predicted to reduce the number of small banks by as much as 50% in the next few years. However, an even greater threat will most certainly finish off any that are brave enough and lucky enough to survive the foregoing. The Federal Reserve Board is contemplating a rule change which severely restricts the ability of bank holding company shareholders to transfer their stock. I'm enclosing an article from the July 13th issue of the Minneapolis Star and Tribune which very clearly describes our dilemma. It is not an overstatement to say that there will be no small banks left if this goes through. The case cited where one of the bank owners dies is exactly parallel to my own situation. There certainly would be no option available to me but to sell the bank because nobody wants a small share of a privately held bank, as you can understand. Over one-half of the banks in Minnesota are affected by this legislation. This issue is clearly a matter of survival for us. We urgently need your help. Won't you please contact me immediately. The comment period on this is over Monday, July 18th. Thanks for your help. 5incerely,  A. Beito esident AB:pmm Enclosure  ''<.t.1 i i ,i -. - - ill d ii :IiIi.-1-) .L , -' - tii..,11. , 0 ......,, 4 v. •• re•  rpc CD  I I  i  I. -r .•11 I l:: • 1 !•1 t • • I. • . I, ,- , ,1 • .,,tg.ri".- Ihi".'".. -, Y j t,;! i',1 1 • •; .1 . -..................  0  •-•  C15 •••••  ..  ---  ••••---•••  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Newspaper article Citations:  Number of Pages Removed: 3  Oslund, John J. "Proposed Fed Rule Change Seen As Threat to Small Banks." Minneapolis Star and Tribune, July 13, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 551 PAUL A. VOLCKER CHAIRMAN  July 29, 1983  The Honorable John Melcher United States Senate 253 Russell Senate Office Building Washington, D.C. 20510 Dear Senator Melcher: On January 24, 1983 you wrote to express your concern regarding allegations that had been made against the Helena Branch of the Federal Reserve Bank of Minneapolis by Mr. H. A. Carlson of Capital Aero, Inc., an air courier located in Helena, Montana. You enclosed a letter dated January 13, 1983, in which Mr. Carlson alleged that the Helena Branch had discriminated against Capital Aero (and in favor of the Helena Branch's contract courier) in the application of the Branch's deposit deadline for processing cash letters, and that Helena Branch officials threatened Capital Aero's bank customers with a cut-off of Federal Reserve System business to induce them to switch from Capital Aero to the Branch's contract courier for transportation of checks and other cash items to the Helena Branch. In a letter dated March 2, 1983, I advised you that I had asked the Board's staff to conduct an examination of I regret that because the Capital Aero's complaint. allegations contained in Mr. Carlson's letter were related to a lawsuit filed by Capital Aero against the Helena Branch, the Board's staff was unable to complete its investigation as On June 16, 1983, expeditiously as it might have otherwise. Capital Aero's suit was dismissed by the United States District Court for the District of Montana (Helena Division) and the A copy of Board's staff has now completed its investigation. the staff's report, which addresses the specific allegations contained in Mr. H. A. Carlson's letter, is enclosed. The Board staff's investigation included an on-site inspection of the records of the Helena Branch, interviews of the Branch officials involved, and interviews of responsible This officers of several of the Montana banks concerned. investigation revealed that Capital Aero's allegations are not supported, and in significant respects are indeed contradicted, In fact, Capital Aero apparently by the available evidence.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  IL.  The Honorable John Melcher  -2-  to the received more favorable treatment with respect than the application of the Helena Branch's deposit deadline Aviation of Federal Reserve's chartered air courier, Richland In addition, interviews of responsible Sidney, Montana. from those officers of seven Montana banks, randomly selected , disclosed that switched from Capital Aero to Richland Aviation no hint of threats or intimidation of any kind. be Although Capital Aero's allegations have proved to ging even a unfounded, I very much appreciate your brin I can assure you that we potential problem to my attention. tenance of will continue to make every effort to assure main . high standards of service in the public interest Sincerely,  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  July 29, 19R3  The Honorable Pan Ouayle United States Senate Washington, D. C. 20510 Dear Senator Ouayle: Thank you for your letter of July 20 recommending Mr. Howard L. Chapman for a position on our Consumer Advisory Council. I can assure you that Mr. Chapman will receive full consideration when the Roard selects eight new Council members later this year. The Council proviles valuable assistance in advising on the noard on its implementation of consumer regulations and other consumer-related matters, and the Board is pleased to receive recom-lendations for qualified individuals who can contribute to the Council's work. Again, the Board appreciates having your recommendation. Sincerely,  Saa4  AFC:DJW:vcd (V-147) (83-274) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2)  COMMITTEES:  DAN QUAYLE mmiusift,  ARMED SERVICES BUDGET  SH 524 HART SENATE OFFICE BUILDING (202)224-5623 INDIANAPOLIS  OFFICE:  Cnilci Zfalez Zenate  LABOR AND HUMAN RESOURCES  WASHINGTON, D.C. 20510  Room 447. 46 EAST OHIO SrmiEET INDIANAPOLIS. INDIANA 46204 (317) 269-5555  July 20, 1983  e)1  The Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve Board 20551 Washington, D.C. Dear Mr. Chairman:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I am enclosing for your consideration as a nominee to the Consumer Advisory Council of the Federal Reserve Board the resume of Mr. Howard L. Chapman of Fort Wayne, Indiana. As a practicing attorney in Northeastern Indiana, Mr. Chapman has over 25 years of experience in the field of conI am confident that his practical experience sumer lending. in the field would prove to be a real asset to the Consumer Advisory Council. His familiarity with the relevant materials and statutes will permit him to assume the necessary responsibilities with relative ease. I hope that you will give Mr. Chapman every consideration for one of the eight available appointments to the Board. Please feel free to contact my Administrative Assistant, Tom Duesterberg, if we can provide any additional information or I will look forward to hearing be of any assistance to you. nts. Thank you. of your decisions on these appoi rely,  n Quayle U.S. Senator DQ:tde Enclosure  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 1  Resume, Howard L. Chapman, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  4  July 29, 1983  The Honorable Spark Matsunaga United States Senate Washington, D. C. 20510 Dear Senator Matsunaga! Thank you for your letter of July 19 recommending Advisory Mr. Lawrence S. Okinaga for a position on our Consumer Council. I can assure you that Mr. Okinaga will receive full il members consideration when the Roard selects eight new Counc later this year. The Council provides valuable assistance in advising ations and on the Board on its implementation of consumer regul pleased to other consumer-related matters, and the Board is who can receive recommendations for qualified individuals contribute to the Council's work. Again, the Board appreciates having your recommen dation. Sincerely, Saaul A. Volcket  AFC:DJW:vcd (V-143) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Bray w/copy of incoming Mrs. Mallardi (2)  CHI F DEPUTY fRATIC WHIP  SPARK M. MATSUNAGA 61-271?4-  HAWAII  .•  MEMBER: WASHINGTON OFFICEr 109 HART BUILDING  INAshiNcroni. DC. 20510  ?..jCi-tifeb  NONC LULU OFFICE: 3104 PRINCE KUNIO BUILDING HONOLULU, HAWAII 96850   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1icilcde  WASHINGTON, D.C. 20510  COMMITTEE ON FINANCE COMMITTEE ON ENERGY AND NATURAL RESOURCES AND COMMITTEE ON LABOR HUMAN RESOURCES  July 19, 1983  COMMITTEE ON VETERANS AFFAIRS  CID  CE1  C=0  , 2  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman:  t.:77  N.)  cr? •  ors of the It is my understanding that the Govern nominees to fill Federal Reserve System are considering Advisory Council eight seats on the Board's Consumer 1983. I am which will become vacant on December 31, hly qualified writing to bring to your attention a hig Lawrence S. Okinaga, candidate from the State of Hawaii, Esquire. ernational law Mr. Okinaga is a partner in the int and Case in firm of Carlsmith, Carlsmith, Wichman , he is a graduate Honolulu, Hawaii. A native of Hawaii eived his J. D. degree of the University of Hawaii and rec in Washington, D. C. at Georgetown University Law Center the Hawaii State He is a member and Vice Chairman of previously served on the Judicial Selection Commission and Association. Despite Board of Directors of the Hawaii Bar donated his time and his busy schedule, Mr. Okinaga has community projects. He legal expertise to many worthwhile ic leader in is a highly respected attorney and civ Honolulu. h Mr. Okinaga I have been very well acquainted wit lities so impressed me for many years. His personal qua ssional staff. Based that I asked him to join my congre the fine traits that on his superior job performance and his appointment to I have observed in him, I recommend er Advisory Council the Federal Reserve System's Consum He would be a real without any reservations whatsoever. his application be that asset to the Council, and I urge n. given, early, favorable consideratio   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul Volcker July 19, 1983 Page Two losed for A copy of Mr. Dkinaga's resume is enc your information. Aloha and best wishes. Sincerely,  Spark Matsunag U. S. Senator Enclosure:  Resume of Lawrence S. Okinaga  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Membership application Citations:  Number of Pages Removed: 2  Application for Membership on Consumer Advisory Council, Federal Reserve Board, for Lawrence S. Okinaga, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  July 29, 19E33  The Honorable Richard C. Lugar United States Senate Washington, D. C. 20510 Dear S.enator Lugar: Thank you for your letter of July 13 recommending ry Mr. !Toward Chapman for a position on our Consumer Adviso Council. full I can assure you that Mr. Chapman will receive members consideration when the Board selects eight new Council later this year. The Council provides valuable assistance in advising tions and on the noard on its implementation of consumer regula nleased to other consumer-related natters, and the Board is can receive reco-meniations for qualified individuals who contri')utc to the Council's work. Arjain, the Board appreciates havinci your recommen•dation. Sincerely,  AFC:DJW:vcd (V-135) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2)  RICHARD G. LUGAR mixam  COMMITTEES: FOREIGN RELATIONS  SH 308 SENATE OFFICE BUILDING  AGRICULTURE, NUTRITION AND FORESTRY  WASHINGTON, D.C. 20510  242-224-4814   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  United tates e tnatc  SELECT COMMITTEE ON INTEL LIGENCE  WASHINGTON. D.C. 20510  July 13, 1983  c.7.7., ---r1  Dr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Constitution Ave. & 21st Street 20551 Washington, D.C.  -m c.,-) rn ccn  --ri  ,:---,  C.0  rn  C--  7... -...  c.--.: IV _-  .ril...-..f. c-) c....-_, .._ .rri -.. -  -ft, --  Dear Paul:  ..:. ••••  .-.......  I understand that Howard Chapman has applied for an appointment to the Consumer Advisory Council to the Federal Reserve.  CP CD  CD  Howard would bring to this advisory council leadership abilities and a solid knowledge of business and consumerrelated matters. Please feel free to contact me if I can provide any additional background or information on behalf of Howard. I appreciate your serious consideration of his candidacy for a position on the Consumer Advisory Council.  Richard G. Lugar United States Senator RGL:rf  ..-1-1---n  a') ....4  CD  -  I have known Howard for many years and know that he would make an excellent contribution to this Council. Not only is he an outstanding attorney in Fort Wayne, but he Too, he is is also very active with the Republican Party. very involved with many community activities.  Sincerely,  r--- c7) .....—...,  .rn --t c-:,. _ __ rt-1  -= a•, P.,  co co  cip ••••••!  ... .' ••••.. n.  ...-CO'D  •  •  July 29, 1983  The Honorable Paul S. Sarhanes United States Senate Uashington, D. C. 20510 Dear Senator Sarbanes, Thank you for your letter of June 29 recommending !'Itarcie H. Muller for a position on our Consumer Advisory Council. I can assure you that Ms. Muller will receive full consideration when the Board selects eight new Council members later this vear. The Council provides valuable assistance in advising the Board on its imple-lentation of consumer regulations and on other conswier-related matters, and the, Board is pleased to receive recommendations for qualified indivirinals who can contribute to the Council's work. z,gain, the Board appreciates having your recommen-  Sincerely,  SZ Ea4  AFC:DJW:vcd (V-117) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2)  CLO preparing response PAULS.SARBANES 4.41A R Y LA ND  #Z1Cnifeb Zfatez Zertale WASHINGTON, D.C. 20510  June 29, 1983  Paul A. Volcker Chairman Federal Reserve System Board of Governors 20th Street & Constitution Avenue, NW 20551 Washington, DC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Mt. Volcker: I am writing to recommend highly Margie H. Muller for membership on the COnsumer Advisory Council of the Federal Reserve Board. It has been my pleasure to know Margie Muller for a number of years and to be familiar with her exceptional background in banking and consumer affairs. She has served in very responsible positions in Maryland's major commercial banks and serves as Bank Commissioner in the State of Maryland. I urge your careful consideration of her qualifications for membership on the Consumer Advisory Council. With best regards, Sincerely,  VO-AJ  Paul S. Sarbanes United States Senator  PSS/bmk  NVilEIV1-13 3U1 10 331AI) 03/1133H  Ea61 911 :9 WV 1 - 111r 1131SkS 31\1.233.11\11:13131 all AO S11014113/\00 AO GV09  a GEORGE HANSEN. IDAHO RON PAUL. TEX. BILL McCOLLUM FLA. BILL LOWERY. CALIF. JOHN MILER. IND.  WALTER E FAUNTROY,0 C • CHAIRMAN STEPHEN L NEAL. N C DOUG BARNARD. JF1., GA CARROLL HUBBARD, JR., KY BILL PATMAN, TEX. BUDDY FIOEMER. LA. BRUCE A MORRiSON, CONN. JIM COOPER, TENN THOMAS R CARPER. DEL  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  H2-109 ANNEX NO 2 WASHINGTON DC 20 915 (202)226-7315  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-EIGHTH CONGRESS  WASHINGTON, D.C. 20515  July 2B, 1983  The EonoraLle Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551 Dear Paul: I have received the enclosed letter from my colleague and a Ne;:iber of the SubcorlAttee, rr. Paton on H.R. 1432, a bill to amend the Federal Reserve Act to require the Board of Governors of the Federal Reserve System to transmit to the Congress a ronetary early warning report whenever the Board or the FOMC takes any action to implement a change in existing monetary policy. I have responded to him as shown by the enclosed letter which among other items, states that I would share this letter with you so that you and he could discuss the thrust of the bill at the presently scheduled hearing of this Subcommittee on August 3, 1983. H.R. 1432 is not a part of the hearing for that day; nonetheless, in as much as there is a requirement in both H.R. 1569 and the Chairman's Mark for reporting changes in objectives, I thought it would be useful for us to be able to pursue a colloquy if the opportunity presented itself. See you then! With kindest regards, I am Sincerely yours.  Walter E. Fauntroy Chairman ENCLOSURE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE FEDERAL RESERVE S1STE1 HOUSE OF REPRESENTATIVES WASHINGTON, D. C. 20515 DOUG BARNARD,JR. 10TH DISTRICT OF GEORGIA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 27, 1983  ISI33 JUL 29 AM II: 42 RECEIVED OFFICE OF T;N: CHAIRYAI:  Dear Ms. Smith: It is my understanding that ns. Mary Jane Large has been nominated by the Consumer Bankers Association for a position on the Federal Reserve Board's Consumer Advisory Council. I am happy to recommend her to you for this position. During her legal career, Ms. Large has gained an extensive knowledge of consumer laws and regulations as they affect our various financial institutions. her vast background and experience in the areas of consumer and creditor interests would indeed qualify her as your choice to advise the Federal Reserve's Board of Governors on their responsibilities under the various consumer protection laws. Ms. Large is sensitive to the need for and importance of the Citizens Advisory Council and would conscientiously and aggressively pursue her duties and responsibilities. It is my pleasure to recommend her without reservation. Her nomination merits your very serious consideration and approval. Sincerely,  iv,s. Dolores S. Smith Assistant Director Division of Consumer and Community Affairs Board of Governors of the Federal Reserve System viashington, D.C. 20551  . GOvii... of ••'  BOARD OF GOVERNORS  ,410 •• .• )t C • CO  •0 • -r, • -A . • IA'  A. ,,,:„,\  OF THE 1 '• g•: (,) •  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER  July 27, 1983  CHAIRMAN  The Honorable Robert H. Michel House of Representatives 20515 Washington, D.C. Dear Mr. Michel: Thank you for your joint letter of July 13 regarding the current course of monetary policy. I feel the best way I can respond to your understandable concerns as a whole is to enclose my recent testimony, pursuant to the Humphrey-Hawkins Act, which deals with the questions in detail. As I pointed out in that testimony, the Federal Reserve has since May taken a slightly less accommodative posture in the provision of bank reserves. This has been accompanied by--but by no means the sole cause of--some firming in interest rates over this period. As I hope the testimony makes clear, this action was not taken only, or even primarily, on the basis of strong growth in M1 for several quarters. It was motivated basically by a concern for enhancing the durability of the economic recovery by moving to avoid financial conditions conducive to any resurgence of inflationary pressures. To quote my testimony on this point: "limited, timely and potentially reversible measures now, when the economy is expanding strongly, are clearly preferable to the risks of permitting a situation to develop that would require much more abrupt and forceful action later to deal with new inflationary pressures and a longsustained pattern of excessive monetary and credit growth." I also must point out that fiscal policy can relieve pressures on interest rates currently and prospectively by getting excessive federal credit demands out of the way of rising private credit needs to support an expanding private economy. The more rapid expansion of the economy currently, while welcome in itself, also carries the clear potential for advancing the time at which business credit demands will increase strongly, increasing the urgency of reducing the Treasury's call on the market. In that connection, I would note mortgage and consumer financing, as normal at this stage y. of recovery, has already expanded appreciably more rapidl Your recognition of the risks inherent in the current res-budget situation and your resolve to reduce fiscal pressu h preferably through actions on the expenditure side, but throug revenue actions, too, if necessary--can be an enormously constructive influence in the current situation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Psohert H. Michel Pale Two  I shoul:1 not close without repeating my concern about early passacie of the IMP lelislation, in ma'ior Part because failure to suoport the IMF effort at this critical luncture would carry the grave risk of international financial disarray rebounling back on our own interest rates, the availability of hank cre3it to Americans, and prospects for sustained recovry. Sincerely, Sg_aul A. VolckeL 7.nclosures  NMS:PAV:pjt (#V-129) bcc: Mrs. Mallardi (2)  Identical letters also sent to: Congressmen Trent Lott, James G. Martin, Philip M. Crane, Jack Kemp, Dick Cheney, and Guy Vander Jagt.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July -27, 1983  The Honorable Bill Patman House of Representatives Washington, D.C. 20515 Dear Mr. Patmancomment Thank you for your letter of July 12 asking for a of El Campo, on correspondence from Mr. and Nrs. Elwin Mert housing. Texas, relating to the high cost of credit for In urging policymakers to consider the effect that and Mrs. Merta interest rates have on the American people, Mr. ing -- that is have focused on a sector of the economy -- hous itions. In this particularly sensitive to changes in credit cond tary policy connection, the Federal Reserve through its mone ain inflationary actions has been working for some time to cont ected not only in pressures that until quite recently were refl also in interest rising prices of housing and other goods, but cted future inflarates that carried a large premium for expe nt increases, tion. I an glad to note that despite some rece are currently concosts of mortgage and other types of credit s ago when siderably lower than they were only a frew year inflation reached double-digit rates. g The likelihood of additional easing in financin d hinges imporconditions for housing during the period ahea ne in the governtantly, I am convinced, on greater discipli ction in prospective ment's fiscal affairs. An appropriate redu ronment in budget deficits would provide an improved envi re inflation and a financial markets, reduce concerns about futu preoccupations that further rise in interest rates, and moderate ed to retreat from its the Federal Reserve might somehow be forc basic anti-inflationary course. I hone these comments will be helpful. Sincerely, RMF:JLK:AFC:NS:pjt (V-130) bcc: Mr. Fisher Ms. Wing Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S/Paul A Wicket  1408 LONGWORTH BUILDING  BILCPATMAN • 14TH DISTRICT, TEXAS  WASHINGTON, D.C. 20515 (202) 225-2831  Opyaremsoftfictiniteb  P.O. DRAWER A  tato:4  jbottcse of 3aeprdentatibecs tilazbington, ri.C. 20515 July 12, 1983  Mr. Paul Volcker Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volcker: Enclosed is a copy of a letter from constituents of mine, Mr. and Mrs. Edwin Merta of El Campo, which they asked me to forward to you. Enclosed with the letter are pages of advertisements for houses from the local paper. Thank you for your consideration. Sincerely,  WNP/ac   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  GANADo, TEXAS 77962 (512) 771-3303  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  v-,1513  94.  I lACLA,..„ '  k , 1(1kLtk_c k)  Al  kf  / 1 4-t  '  Clcrit_•  &MU._ N. L._ C.-Cx._  ,1 \" 4••••••-•.0 ej  5i. --1.—=,1/4..1  (1  C..isvt-t.zs._.;.,,..1  \--(_‘..-\"..4_•\1)  a  ,CL)--c.)  1-(Y_L_  E  .  / (L. %  .1 A  k___t•L_  ,LA)CUL )11;  L.  LI  . 4.-clr(j A-AAA:-Aa  6-LC  II  jut 0 8 1Si   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,4i„Lci  205,.  6x) ±1, A,,,,cLALL fik) )40,, q kL cc a As--  AtC1-1  L2 1  LT  9r3  „.k. u1N,L4-QA),. AQ.  .•  Lt 4&. A1)  A  AA\-  .,LE) L  .iarL  .em=  Jt_ .  A 1=76_, _j__)  ,;,.. r  .1)1.-crL  L1,--6,--4-:  .  I  k.--)  C----k.`-)1j1-.6-  %7  ,,,.„1,,a ,tL ..  6  A-okt-  ML . P tk: %._cr•  ti'Lls_c, ....-itSti.__  1-  C  k+ -c-• ./Y--(1) I  -5.-1,t_ .1) tl-k-  4:1t-c-4 -1 7t /11 6  /  ./6/J-2A) _,i.t...  t.: A.. .. .  .2\5:_i,*,  I  1,, -1 4 .- -- -r4- j tifi1(  iKz  'i44-1.4--) ri  llj)...s_.1 . Xi C'_- )  „Lu-e-l.k_.  J  k 4,,,,,)  irt-P3,-i-:  tt--f  2:  C ,  •  t_  ,,I.L.ex......1._._: ,b1L;._  L.L.  )lac_iii .1 c..._  fc--(---  ...: , Lt..' A_Lt_ z_ , ie - (LI 7-E.-___ [ 4.1 lc i u1 1)1, 'ci ( 4-C• .t.LS . "C , /%_4.-'11/4_,k_.CLILZ Jt:1 .i.)CL-1 -_1, 111AZ- V•L1 t 1,.  r  •,t...k.L.-  ktk  _,CA  +e -  LLc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  F 4-t r  j  •  )kitc- 64  Ps  /(- ..(2.  -  L 7)V-a-  ..,L  11\.4J  areW  cL.A...L._k 4Jz. (LeLd '/-,:-  , .,, ) ,A,A1 t,),,ca_i_,L, 61ca_L,‘4,_,. cu 4,c,,4••C't)-(--  Calk t _-,  9i:  4-P , --I)  02r_L4  .j_c_  Ak_U-t-L)  +-6 -il j-  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 27, 1983  The Honorable Sander Levin House of Representatives 20515 Washington, D.C. Dear Mr. Levin: During the hearing before_ the House Banking Conunittee on July 20, Chairman St Germain asked that I respond to the following question from you: "If there is no action ()lithe fiscal side to reduce the projeqted deficit, when, in your opinion, is. the crisis likely to occur?" I am pleased to enclose a, copy of the response to your question, which I am also forwarding to the Committee for inclusion in the record. Please let me know if I c_an be of further assistance. Sincerely,  Enclosure  (Insert page 118)  CO:pjt bcc: Mike Prell Mrs. Mallardi (2)  Insert page 118 ,  (July 20, 1983, hearing before House Banking Committee)  Chairman Volcker subsequently furnished the following in response to a question posed by Congressman Levin:  I don't want to talk in terms of "crises" and I certainly can't pinpoint a crisis date, but I think we can make certain points about the growing risks implied by unabated budget deficits.  Even now the call of the Federal  Government on the markets adds to interest rate pressures. But we have been able also to say, in the midst of recession,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  that it has provided purchasing power. Now, with the economy growing rapidly (particularly consumption), demands for mortgage and consumer credit are picking up.  The dangers of a "squeeze" and stronger interest  ess rate pressures will increase--perhaps strongly--when busin credit demands also rise sharply. the more rapid the expansion.  That day will come closer  With a continuing strong  of expansion, the problems could be apparent toward the end orderly this year and in 1984--potentially jeopardizing the progress of the economy. Continued progress against inflation could be one potentially strong counterweight.  But what would remain true  risks described. is abnormally high real interest rates, with the  ofGovi••• .•,;. .••4-  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20551 PAUL A. VOLCKER  July 27, 1983  CHAIRMAN  The Honorable Robert H. Michel House of Representatives 20515 Washington, D.C. Dear Mr. Michel: Thank you for your joint letter of July 13 regarding the current course of monetary policy. I feel the best way I can respond to your understandable concerns as a whole is to enclose my recent testimony, pursuant to the Humphrey-Hawkins Act, which deals with the questions in detail. As I pointed out in that testimony, the Federal Reserve has since May taken a slightly less accommodative posture in the provision of bank reserves. This has been accompanied by--but by no means the sole cause of--some firming in interest rates over this period. As I hope the testimony makes clear, this action was not taken only, or even primarily, on the basis of strong growth in M1 for several quarters. It was motivated basically by a concern for enhancing the durability of the economic to recovery by moving to avoid financial conditions conducive any resurgence of inflationary pressures. To quote my testi smony on this point: "limited, timely and potentially rever are ible measures now, when the economy is expanding strongly, clearly preferable to the risks of permitting a situation to n develop that would require much more abrupt and forceful actio later to deal with new inflationary pressures and a longh." sustained pattern of excessive monetary and credit growt I also must point out that fiscal policy can relieve by pressures on interest rates currently and prospectively of getting excessive federal credit demands out of the way te rising private credit needs to support an expanding priva ntly, economy. The more rapid expansion of the economy curre tial for while welcome in itself, also carries the clear poten will advancing the time at which business credit demands ing the increase strongly, increasing the urgency of reduc I would Treasury's call on the market. In that connection, this stage note mortgage and consumer financing, as normal at rapidly. of recovery, has already expanded appreciably more Your recognition of the risks inherent in the current pressures-budget situation and your resolve to reduce fiscal but through preferably through actions on the expenditure side, conrevenue actions, too, if necessary--can be an enormously structive influence in the current situation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Aviik  The Honorable Tlobert H. 'lichel Page Two  I shoull not close without repeating my concern about early passage of the IMF lelislation, in ma-ior part because failure to sunport the IMF effort at this critical iuncture woull carry the grave risk of international financial disarray rebounling back on our own interest rates, the availability of hank credit to Americans, anl prospects for sustained recovery. Sincerely,  S/Paul &Wicket Tnclosures  NMS:PAV:pjt (#V-129)  bcc:  Mrs. Mallardi (2)  Identical letters also sent to: Congressmen Trent Lott, James G. Martin, Philip M. Crane, Jack Kemp, Dick Cheney, and Guy Vander Jagt.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi Action assigned to Steve Axilrod   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  eades lepfe,f, rcf °.;IcelioRs  Z,tptec -  Congte,55 of tbe PouSe  Ilepre5entatibesS  ' it /3 p#  tinastington, July 13,  S.  Honorable Paul Volcker Chairman of the Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman, We are deeply concerned about published reports that the Federal Open Market Committee is seriously considering a tightening of monetary policy and a raising of interest rates. We believe it would be ill-advised for the following reasons. Concern has focused on the growth of M1 or on the strength of the economic recovery as supposed harbingers of renewed inflation. But we must reject the notion that too much economic growth is the cause of inflation; and in fact the current recovery remains below the post-war norm. Moreover, as you know from the Federal Reserve's recent experience with money supply targets, the M1 definition of the money supply, taken by itself, has been quite misleading as an indicator of monetary policy. Because changes in the demand for money were not adequately anticipated, the kind of upward "nudges" in interest rates and "modest" restrictions S f the money supply which are now contemplated became unintentionall: contractionary. Almost every other indicator besides M1 fails to support the wisdom of a rise in interest rates. The dollar has risen and remains quite strong against the strongest foreign currencies. The prices of gold and other sensitive commodities have remained stable if not soft -- indicating the absence of speculation on future inflation. The growth of M3 has slowed over the past eight months, at the same time as MI accelerated. And even MI shows recent signs of slowing without a rise in the discount rate. We pledge our best efforts to bring about reductions in the growth of federal spending which, unlike substantial tax increases, would reduce the total burden of government on the economy. And the economic recovery itself will diminish fiscal pressure by expanding the tax base and diminishing unemployment-related spending.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The jobs and hopes of Americans must not be dashed out of abstract concern for one arbitrary measure of the money supply. The current recovery has barely returned the economy in real terms to its 1979 level, and industrial production remains far below it. The recovery must not be needlessly jeopardized by an unnecessary rise in interest rates. We, and a great many of our colleagues, would look with extreme disfavor upon any increase in the discount or federal funds rates at this time.  Sincerely yours,  ROBERT  . giCHEL,  TRE T L6-TT, M.  Ji . 4 -- UtS G. MARTIN,  A  \\J AA.0 PHILIP M . CRANE, M.C.  BOARD OF GOVERNORS OF THE •co  tr .  •C  •-n  • -A  ..1T1'  it •  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  61. ..!;'"..  July 26, 1983  PAUL A. VOLCKER CHAIRMAN  n The Honorable Fernand J. St Germai Chairman e Committee on Banking, Financ and Urban Affairs House of Representatives 20515 Washington, D.C. Dear Chairman St Germain:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  e urged that the United Several members of Congress hav l International Monetary Fund sel States should propose that the pending increase in IMF quotas its gold as an alternative to the Arrangements to Borrow. In and in commitments to the General these members have cited my support of that position, some of Comstion in February before the statement in response to a que Affairs that gold is "an an Urb and e anc Fin g, in nk mittee on Ba fidence in the institution con in nta mai p hel to IMF asset of the in time of need." and make sure it has resources Fund, and it helps to Gold is indeed an asset of the need. But I believe it is of e tim in ces our res has it make sure se in IMF resources before rea inc ed pos pro the for e no substitut the Congress. provides a contingency ch whi , ld go the of e Sal 1) t circumstances would sen pre in F, IM e th for e erv res to attract other reweaken the ability of the IMF otherwise, as it has in or ing row bor h oug thr s rce sou to do in the future. the past and will be required undertaken in the knowledge Present IMF borrowings were stantial gold reserves. of lenders that it had sub that gold could not prac2) Experience demonstrates necessary to meet potential ticably be sold in amounts timeframe contemplated. needs, certainly not in the likely weaken the IMF at a 3) The net result would view held strongly by other time of maximum strain--a approve any gold sales, and members, who would have to . by the IMF management itself size and form of the "conFurther study of the proper dated by r time, as would be man ove IMF the of e" rv se re cited tingency ver, for all the reasons we Ho e. at ri op pr ap is 7, H.R. 295 sale of gold are not a realIMF r fo als pos pro e iev bel above, I umincrease under present circ ta quo a to ve ati ern alt istic stances.  n The Ponorahle Pernanr1 J. St Germai PaiT Two  rease the Th.2 necl now is to strenithen aryl inc nosition. resources of the IMF, not to weaken its Sincerely,  S/Paul A. Volcker EMT:PAV:p]t boo:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Truman Mrs. Mallardi (2)  .•  ,,•'  •• • Gove •.  BOARD OF GOVERNORS  0• •C • -n •.4  OF THE  FEDERAL RESERVE SYSTEM  - co I- •  WASHINGTON, D. E. 2055!  Z: ,4 44 ,  July 26, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter D. Huddleston United States Senate 20510 Washington, D.C. Dear Senator Huddleston: you expressed Thank you for your recent letter in which ry policy would abort the concerns that a tightening of moneta current recovery. to force interLet me assure you that I have no desire process of recovery. It is est rates higher and interrupt the ion to provide jobs for the obvious that we need continued expans unemployed and to foster the millions of Americans who are now of our trading partners-improved world economy in which many ies--can work their way out especially the less developed countr of their current difficulties. objectives, we But if we are to achieve these basic y and sustainable growth in must be sure that we promote health a new round of inflation. the economy, and that means avoiding ear to be fairly well in At this point, inflationary forces app ess we set and hold monecheck, but they will not remain so unl track. The recent firming tary and fiscal policies on the right lly in the form of someactions by the Federal Reserve, basica to the banking system, what less generous provision of reserves id monetary expansion, were taken against a backdrop of rap ry real risks of contribwhich, if left unmoderated, would car . Our actions have been uting to a reacceleration of prices my view imperil the concautious and measured--and do not in loyment. tinued expansion of production and emp have risen as As you know, interest rates typically ssed. This has not been business cycle expansions have progre monetary policy. The simply a reflection of "tightening" te pressures on credit dynamics of business upturns genera s increase their spending. markets as households and businesse that, in contrast to past The problem at the present time is is not getting out of the way recoveries, the federal government potential for an early clash of of other borrowers, and so the serious. Indeed, I think private and public credit demands is erest rates today are higher it would be fair to say that int l deficits were smaller and the than they would be if the federa toward balance in the future. budget were heading convincingly that monetary policy In this context, which recognizes st rates and conditions more is but one factor shaping intere   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  77v0WATANCIFIX.:NF.rgli  The HonoraM.e Walter  r.  Pu14 .1ston  Page Two  generally in financial markets and the economy, I welcome your commitment to implementing sound fiscal as well as monetary policies. It ic certainly my intention to work with the Congress toward this end in an effort to produce a durable prosperity here and abroad. As we are successful both in dealina with the deficit and keeping inflation under control, I firmly believe that we can look forward to sustained lower interest and lona lasting expansion. Sincerely, SiTaul  MJP:PAV:pjt (#V-133) bcc: Mike Prell Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .5it  Et: D. HUDDLESTON  Action assigned to Mr. Axilrod.  KENTUCKY  COMMITTEES: AGRICULTURE: NUTRITION. AND FORESTRY APPROPRIATIONS  'ZiCrtifeb Zfalez Zertafe  SELECT COMMITTEE ON IINELLICIENCE  WASHINGTON. D.C. 20510  SELE4COIITTON . ILL Bt41 N ESPSM:A  July 18, 1983  •  r—  r"  r:77) 01 -11  c0  r•rl  c=2)  )• -7  rn ) 2:  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution, NW 20551 Washington, D.C.  C.) 2C  r  Dear Mr. Chairman: After suffering through the worst recession in forty years there is some hope that we may at last be emerging from was the hard times. One of the primary causes of the recession excessively high interest rates and it was the gradual fall of the rates which has breathed new life into the economic recovery. The decline of interest rates has generated new activity in the housing industry, and has encouraged families to once ne again entertain the hope of owning their own home. The decli ess in interest rates has also sparked new activity in the busin al sector. Businesses are once again planning for new capit investments and many that have been hanging on by their fingertips have been saved from impending bankruptcy. Most importantly, declining interest rates have given new lost hope to the millions of unemployed, many of whom have their homes, their savings, and their self-respect. Unfortunately, it now appears that the Federal Reserve which will Board is resurrecting its old tight monetary policy, Proof of once again force interest rates to higher levels. rates and this is seen in the recent rise in mortgage interest the short-term rates. a I realize that the Federal Reserve believes it has tion and responsibility to use monetary policy to control infla Fed's recent that this has been the driving force behind the extremely action. However, the Fed will be treading on monetary unstable ground if it continues to follow a tight at a time when policy, which ignores interest rates, especially the inflation threat has substantially abated. ery Interest rates must be kept down if the economic recov ery is to is to take hold, and they must stay down if the recov on the Federal continue. I urge you to use your full influence will not Reserve Board to assure that rising interest rates choke off recovery from the recession.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4?::=;  C=  N. I r  .,  I  Honorable Paul A. Volcker July 18, 1983 Page Two  As a member of the Senate, I stand ready to work with you l and and the President to implement sound and coordinated fisca monetary policies, which will bring interest rates down to a level that will unleash the full potential of the American economy. The budget resolution, recently passed by the Congress, ve is a step in the right direction. I urge the Federal Reser process Board to give us a chance to go forward with the budget er, before shifting gears to a tighter monetary policy. Howev if the Fed persists in its policy, and interest rates don't e begin to come down, I will actively support all appropriat to efforts within the Senate to curb the power of the Fed pursue this unwise policy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Walt  D. Huddleston   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 25, 1983  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: Pursuant to the requirements of Sectio n 202 of the Cash Discount Act, I am pleased to submit the Board's report on the effect of charge card transactions upon card issuers, merchants, and consumers. Sincerely,  Enclosure Identical letters to Cong. Wyl ie, Chrmn. Annunzio, Cong. Paul Chrmn. Cam, Sen. Proxmire, Chr mn. Hawkins, Sen. Dodd  bcc:  Bob Fisher Charles Luckett Mrs. Mallardi (2)---  July 22, 1,4R3  mollo  n The Honorable Fernand J. St Germai Chairman and Committee on Banking, Finance Urban Affairs House of Renr,l,sentatives 20515 Washington, D.C. Dear Chairman St Germain: ak" of some or all I have your letter concerning the "le gets, and related information, of the monetary and credit tar nort_jojhe Congress written contained in the !ilonetar_y_Policy_Pe nittee staff during the morning on here and submitted to your Cor ring on July 20. As you iniiJuly 19, preparatory to the hea some people in the market or in the t tha s ort rep are re the P, cat certain information during July lq. press, or both, may have had great concern to me, as well as Obviously, this is a matter of to you. inary steps to I had already undertaken some prelim e been indications of any leak to inquire a')out whether there hav there was any unusual pattern of market participants or whether miclht 2,-Ant to such a leak. I market trading on that day that again the internal handling of ing iew rev of s ces pro the in a-rs of 7-overnors and the Federal Open rd Boa the hin wit al eri mat s thi iod since the Open larket Comper the ing dur e tte Imi Co7 ket Mar mittee meeting. n, Mr. Chairman, I In the light of our common concer and expeditious manner of ive ect eff t mos the t tha t qes sul would ertake a joint inguiry with the und to us for be ll wou g din procee ty. We want to he mutually par e sid out nt nde epe ind an of help olved and that adequate steps res is ter mat the t tha ied satisf possibility of recurrence. can be taken to minimize any ts in that respect and I would like to have your though at your convenience. look forward to hearin7 from you   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  SL Ea4 PAV:pjt (#V-134) bcc: Mr. Axilrod Mrs. Mallardi (2)  AIRMAN GERMAN. R I.. CH FERNAND J. ST NZALEZ, TEX. HENRY 15 GO ISH. NJ. JOSEPH G MIN NT.,O. ILL ::FLANK ANNu cHELL. MD. FAft.-.EN J MIT ATROY. D.C. WALTER E T AL NC. STEPHEN L J N. CALIF. •A PATTERSO • JR. KY. D, AR BB HU C*(ROLL NY E. ALC LAT JOHN J AMOURS. Nit si:DR‘o AN E NY. E IN ND STA N Lu KAR OHIO MAP./ ROSE DA MINN VENT°. B RJCE F D. JR.. GA. DO.G BARNAR . NY. CIA GAA T pkGBLA WASH. MATE LOwITY SCHLIMER. NY. CHARLES E. K. MASS. AN 'R Er &N &A Ti BILL PA- MAN, E. PA. WILEtAm J COYN , LA. ER EM RO DT B uO AN. CAUF. RICHARD H LEHM !SON, CONK EIRJCE A MORR . JIM COOPER. TENN R. OHIO MARC Y K APTU ALA. B EN ERDREICH, . R IA LEVIN, MICH • ER. DEL THC.01 AS R CARP URES, CALIF. ESTEBAN E. TOF  JIM LEACH. IOWA ON PAUL TEX. ED erHuNE. umwAY,CAUF. NORMAN D Em SIAN PARRIS. VA. . M FLA SILL McCOUU LEY. N.Y. GIORGE C WORT NJ. MARGE ROuAIIAAL CAL& SILL LOwERY, LITER. wilt DOtiG SERE . CALIF. DAVID OILIER JOHN HiLER. IND PA. THOMAS J RIDGE. T. TUE. 1114 SART LET  ENTATIVES  U.S. HOUSE OF REPRES FAANCE COMMITTEE ON BANKING.  Volcker Honorable Paul Chairman e Board Federal Reserv . 20551 Washington, D.C  IRS AND URBAN AFFA  NGRESS NINETY-EIGHTH CO OFFICE BUILDING 2129 RAYBURN HOuSE C. 20515 WASHINGTON. D.  US-4W  July 20, 1983  "Ir  an: Dear Mr. Chairm  key parent leak of ap e th t ou ab of the ncerned neral release you today, I am co ge to a d te to ca r di io in As f g and pr ior to the hearin pr rt po re ur yo data from e public. material to th the hands of in s wa ta da of the same ested that some gg s su ha ter either this ce La ur so n. e n oo o rn t s te a At le f day af to the hands o New York early Tues in in y " e wa s u s o t h i l d a ce, foun a "financi from another sour g in at an em ta data, or da oon. during the aftern a di me ws the ne me so nner in which ma e th f o he k eliminary chec handled by t pr a d de an ma e rv ve se ha Re I tion, deral Mr. Chairman, ived from the Fe s no distribu a ce w re e re er we th t r o at p e the r imony tes th testimony and to your test This check indica r e. io te pr it e mm te Co e it Comm of th majority staff e data outside the the data and th f o of y e n a as f le o , re g n riti early orally or in w ific requests for ec sp , t c a f n I ing. Wednesday morn staff. refused by the in re we y on im st te ct that many fa a s i it sical, ant clues from practice as nonsen rt e po th im s rd a ga ve re y percei efore, While some ma irman. Ther ons on what they a h si C ci e de v r e e s s a e b R deed deral ce-the market do in lected audien testimony of the Fe e se th a d to an r s e n rt n repo any ma able these periodic ome with valu s a or testimony in t a g d in e id th ov f o pr e as l for a premature rele --has the potentia ic bl pu l a r e n ge ate in the market. er op rather than the to h ic ation on wh annual reports i m e s "inside" inform e th t n a of would w e interests deral Reserve Fe th e in th r is no it e and mmitte age of for such activity Neither the Co es cl hi ve lective leak se me no co be is e the to er cy to assure that th g process and n ic i r on monetary poli bl a e pu h e e th th h roug ces and neral public th ge e th both of our offi to e s a e to its rel the data prior the media. full range of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (  1  2  this ke a further look into ta d ul wo u yo if it te ia ec uld appr and the Mr. Chairman, I wo all copies of the data w ho le sib pos ee gr the de to termine and attempt to de termine, to the degree de d an e rv se Re l e ra th de Fe d within al testimony were handle rsonnel of this materi pe e rv se Re l ra de Fe om s fr ak le were any Open possible, if there etings of the Federal me in d se us sc di s , wa se ur co data, of to any source. The and I would want you to rt po re the of n io at ar e ep th pr r to MC Market Committee prio uld have been from an FO co ak le the of ce ur e so th that review the possibility source. matters possible so that these as on so as you om fr rt po re I would appreciate a timely fashion. may be cleared up in a Since ely, IT  nand J. St Germain airman FJStG:sLs   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "  July 22, 19R3  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Renresentatives 20515 Washington, D.C. Dear Chairman St Germain: I have your letter concerning the "leak" of some or all of the monetary and credit targets, and related information, contained in the Monetay_PolicyPeport to the Conaress written here and submitted to your Committee staff during the momma on July 19, preparatory to the hearing on July 20. As you indicate, there are reports that some people in the market or in the press, or both, may have had certain information during July 19. Obviously, this is a matter of great concern to me, as well as to you. I had already undertaken some preliminary steps to inquire ahout whether there have been indications of any leak to market Participants or whether there was any unusual pattern of market trading on that day that might point to such a leak. I am in 0,e process of reviewing again the internal handling of this material within the Board of flovernors and the Federal Open Market Committee during the period since the Open larket Committee meeting. In the light of our common concern, Mr. Chairman, I would suggest that the most effective and expeditious manner of proceeding would be for us to undertake a joint inquiry with the help of an independent outside party. We want to he mutually satisfied that the matter is resolved and that adequate steps can be taken to minimize any possibility of recurrence. I would like to have your thoughts in that respect and look forwari to hearing fronl you at your convenience. Sincerely, WINN.  f_a_d PAV:pjt (#V-134) bcc: Mr. Axilrod Mrs. Mallardi (2)1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  N. R I CHAJRMAN FERNAND J ST GERMAI TEX. EZ. ZAL GON HENRY B JOSEPH r, mtNisH. N.J. IRAN ANNuN7,1, ILL , MO. PAt",EN J MiTCHELL OY. D.C. NYALTER E F FETR C. STEPHEN L if. AL. N SON. CAUF. JERn.r M PAT-TER BARD. JR..I(Y. • IROLL. HUM N JOHN J LAFALCE. S. N.H. NORmAN E 0 ARFOUR $T# LUADINE NV OHIO mAPY ROSE OAFAFt. MINN IIRJCE F VENTO. DC)...:GISIONARD,A_Cac FIGFENT GARCIA, NY. H hivE L0wRy WAS R. NY. CHARLES I SCHuME S. MAS NK, FRA NEY BAR BILL IA'MAN. TEX. WILLLAAE J COYNE. PA._ IluODY ROEMER. LA F. RICHARD H UNMAN. CALI N. IIRJCE A MORRISON. CON JIM COOPER. TENN. MARCY KAPTUR. opoo SEN ENONEICN. ALA SANDER M LEVIN, MICH. ThOYAS R CARPER. DEL ESTEBAN L TORALS,  VES U.S. HOUSE OF REPRESENTATI AND URBAN AFFAIRS COMMITTEE ON BANKING. FAANCE  STEwAR HO GEORGE HANSEN. IDA Jim LEACH, IOWA ROW PAUL. TEX. ED BETHuNE. ARIL CAEN. NORMAN 0 SHuMWAY. STAN PARRIS. VA. FLA. SILL ImcCOtiuM. N.Y. GEORGE C WORTLEY. N.J. 1.4ARGE ROL/FEMA. IFEet ALN Y Cot IREERuTt LOSW ala G Dou DAVID ORE (FL  SS NINETY-EIGHTH CONGRE ILDING 2129 RAYBURN HOuSE OFFICE BU 515 WASHINGTON. D.C. 20  July 20, 1983  CALIF.  JOHN Hula, IND THCAEAS J RIDGE. PA. . 1111 1,1 BART LATE. TEX 221-4347  pit  r Honorable Paul Volcke Chairman d Federal Reserve Boar Washington, D.C. 20551 Dear Mr. Chairman:  parent leak of key ap e th t ou ab d ne er u today, I am conc ral release of the ne As f indicated to yo ge a to r io pr d an prior to the hearing data from your report ic. material to the publ of was in the hands ta da e th of me so me has suggested that ter either this sa At least one source La n. oo rn te af y da New York early Tues hands of a "financial house" in d its way into the un fo , ce ur r so he ot an om g fr data, or data emanatin the afternoon. some news media during er in which the nn ma e th of k ec ch y ar the made a prelimin e and handled by rv Mr. Chairman, I have se Re l ra de Fe e th om distribution, port were received fr no s wa e er th at testimony and the re dicates th stimony e Comunittee. This check in th of f af st prior to your te e ty te ri it jo mm ma Co e th e id d of any of the data outs e of the data an as le re y orally or in writing, rl ea r fo ts es fact, specific requ Wednesday morning. In d by the staff. testimony were refuse ny in is a fact that ma it l, ca si en ns as no ce from the practi important clues While some may regard as ve ei rc pe ey th at wh erefore, base decisions on e Chairman. Th rv se Re the market do indeed l ra de e Fe th of y on ence-s and the testim a selected audi to er nn these periodic report ma y an in y on im luable of the data or test ing some with va id ov pr a premature release r fo l ia nt te e po th l public --has rather than the genera to operate in the market. h ic wh on n io at rm "inside" info s semi-annual report e th nt wa d ul rve wo rests of tee nor the Federal Rese and it is in the inte Neither the Commit ty vi ti ac ch su r fo akage of become vehicles no selective le is e on monetary policy to er th at re th su as e to d the public aring process and th he e th h ug ro th both of our offices an ic ral publ s release to the gene the data prior to it a. full range of the medi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1(  ri,  mormewirav  -Al.angnikw".#"  -.44..•  .  -707.7rlienric,  .pummerrre  2  would take a further look into this you if e it iat rec ld app wou I an, irm Mr. Cha how all copies of the data and the ible poss ree the deg to ine erm det to and attempt degree l Reserve and determine, to the testimony were handled wi,thin the Federa Reserve personnel of this material l era Fed m ks fro lea any e wer re the possible, if in meetings of the Federal Open sed cus dis , was rse of cou a, dat The . to any source t you to ation of the report and I would wan Market Committee prior to the prepar leak could have been from an FOMC the of rce the sou t tha ty ili sib pos review the source. ters soon as possible so that these mat as m you fro ort rep a e iat rec app I would n. may be cleared up in a timely fashio Since ely, 17  nand J. St Germain lairman FJStG:sLs   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  If  BOARD OF GOVERNORS OF THE kZ-144 :P  ..4 ..5. V,111-1j1  •  ..eo - -'''• ' -:.1"'..4 • •• f'RAL RES°L .•. • • •.. • •'  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  July 21, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Walter: First, I want to thank you for sending me some weeks ago your remarks to the American Financial Services Association concerning the effects of deregulation on the financial industry. As we have discussed on several occasions, I too am concerned that rapidly evolving changes may have unforeseen consequences upon the continued soundness of the nation's financial institutions. It is appropriate that we proceed cautiously in this area and study carefully the implications of proposed legislation affecting the activities and powers of depository institutions. As you are aware, I have forwarded proposed legislation to Congress that would establish a moratorium on the presently disorderly evolution of the financial system precisely to permit and encourage such careful consideration. I have expressed general support for legislation proposed by the Treasury that would expand the powers of bank holding companies, but only within the framework of adequate supervision of the bank and the entire holding company. There are particular questions in that legislation upon which we will want to comment later. But it is my hope that Congress will take up these issues in the near future so that needed restructuring can proceed in an orderly and thoughtful fashion. I also appreciated your sending me a copy of your Subcommittee's report on the use of foreign currency obligations as collateral for Federal Reserve notes. I was heartened by your conclusions. In connection with your recommendation that the use of foreign currency obligations be limited to unusual and exigent circumstances, I want you to know we have implemented interim procedures to limit the need to use such obligations. To assure further that the use of such obligations is limited to critical situations, I discussed this matter with the Presidents of the Reserve Banks after the FOMC meeting on Wednesday. I outlined to them the possible options we have for more permanent procedures and received their views on what they perceive as desirable. As a result of these discussions, I have asked staff   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Walter E. Fauntroy Page Two  to develop the alternatives further and present them to the Board for consideration shortly. I anticipate that the Board will review this matter in the near future, and I will advise you as to the results. Again, let me express my appreciation for your comments and support. Sincerely,  SIfag! DA:GTS:PAV:pjt (#V-90) bcc: Don Adams Gil Schwartz Mrs. Mallardi (2)v7 Legal Records (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -•••••110,  Bradfield; info copy to Mr. Truman Mr. assigned Action WALTER E FAUNTROY, D C., CHAIRMAN ST;PHEN L NEAL, N C DOUG BARNARD JR GA. CARROLL HUBBARD, JR., KY. BILL PATMAN TEX. BUDDY ROEMER. LA. BRUCE A MORRISON, CONN. JIM COOPER, TENN. THOMAS R. CARPER, DEL. H2-109 ANNEX NO 2 WASHINGTON DC 20515 (202) 226-7315  GEORGE HANSEN, IDAHO RON PAUL, TEX BILL McCOLLUM FLA, BILL LOWERY. CALIF JOHN MILER. IND  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-EIGHTH CONGRESS  WASHINGTON, D.C. 20515  May 18, 1983  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551  ool rl  Dear Paul: On Tuesday, May 17, 1983 I had the opportunity to present opening remarks to the American Financial Services Association's week long convention which starts with Industry Day. I wanted to share those comments with you because they represent much of my current thinking on some very specific issues. In extending their invitation, AFSA executives asked me to comment upon the impact that deregulation would have upon the financial industry and upon their own unique circumstances. AFSA is a national trade association of 586 companies operatinci 15,000 offices whose firms are engaged in manufacturing, retailing, banking, thrift operations, and consumer installment lending activities. With such diverse interests, they are very much interested and supportive of deregulation and are much concerned with potential legislation which would further define banks and banking activities particularly as it has been raised in the non-bank banks issue. Until now, I have not stated any position on the nonbank banks issue. Indeed, I took pains to avoid defining what position I might take on any moratorium or other legislation. I did, however, discuss in some detail my concerns over deregulation and the risks which could rise should we fail to maintain the distinctions we have historically had between banking and commerce. Following delivery of the speech, I decided that I should share it with you and to solicit any further comments that you might have.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Volcker  - 2 -  May 18, 1983  I am also enclosing for your use a copy of the Report of the Subcommittee on the Use of Certain Provisions of the Federal Reserve Act, as amended by Section 105(b)(2) of the Monetary Control Act of 1982 which authorized the Federal Reserve to invest in obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof. This Report is an outgrowth of a hearing and Subcommittee investigations. Specifically, it states that this provision aids in the more efficient management of Federal Reserve assets, that the Federal Reserve has exercised this authority in a manner consistent with their role, and that there is no credible evidence of a broader use of this authority to monetize foreign debts. The report also makes certain recommendations on the use of foreign currency assets as collateral and directs the staff to prepare legislation that would abolish the collateral requirement. A copy of that bill, and a statement in support thereof, is also included for your use. Sincerely yours,  Walter E. Fauntroy Chairman ENCLOSURES   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  REMARKS OF THE HONORABLE WALTER E. FAUNTROY CHAIRMAN, SUBCOMMITTEE ON DOMESTIC MONETARY POLICY COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS before the AMERICAN FINANCIAL SERVICES ASSOCIATION  Hotel Sheraton Washington, Washington D. C. Tuesday, May 17, 1983 ************  It gives me great personal pleasure to welcome each of you to Washington for the Convention of the American Financial Services Association. I am particularly pleased to have the opportunity to be here because of my respect for the work that your association and its members have done on Capitol Hill in banking and finance, in community service, and political activism. Your representatives in Washington work hard; they are knowledgeable; and, more importantly to those of us who are Members of Congress, they have been genuinely helpful. In extending this invitation, your executives asked me to make a few comments about the impact that deregulation will have upon the financial industry, and upon your own institutions. While I do not propose to become embroiled in the debate over non-bank banks vs. banks, I do want to share with you some of the underlying concerns that make this issue so very difficult for public policy makers. Deregulation has become something of a religion in Washington. We have deregulated the airlines industry, are beginning to deregulate the trucking, rail, and telecommunications industries, and are trying to catch-up with deregulation in financial services. There is much that is good about this. Old and obsolete practices and prices have been cleared away, efficiency has been improved, and new services have been offered to the public. But we must recognize that there have also been costs: the communities who have lost regular and affordable air service; the people who will lose low cost local phone service; and borrowers who have lost the possibility of low-interest, long-term credit from stable and financially sound institutions. Very simply, what concerns public policy makers like myself about financial services deregulation are the safety and soundness of depositor funds and whether they will be jeopardized by the adventures of the depository institutions. We have seen over the past years the difficulties which retailers, manufacturers, and developers have gotten into. The question arises, therefore, as to whether the holding companies might be tempted, if the opportunity presented itself, to use the resources of a depository institution to prop up failing affiliates, with consequent risks to the saving public. it is a question which constantly rises; but, in this instance it is more sharply focused because, for the first time, we are confronted with the issue of whether or not we ought to maintain distinctions between banking and commerce. This issue is critically important because of the role banking and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  .financial services play in commerce. Credit is quite Iiierally the lifeblood of our modern economy, whether it be the long-term bonds which businesses need to build plants and equipment or governments need to build highways and airports and water projects, or the mortgages which people need to buy homes, or the loans which businesses need to finance inventories and consumers need to finance purchases. There are two reasons, therefore, that we in Congress must balance the distinctions between financial services and commerce, and why we must Iin how we proceed with deregulation of financial services. First, if • people lose confidence in our financial system because of the misadventures of financial service institutions, the flow of savings and investments into those institutions will dry up, and our whole economy will stumble. In no other inI ustry would such a loss of confidence have such detrimental effects on the economy. To appreciate this, remember that, before we established national financial regulation in the 1930s, every major economic slump in this country, including the Great Depression, began with a financial collapse. Second, banking and financial services have become one of the key regulators of economic activity, growth and inflation. Controlling the growth of money and credit has been and will continue to be one of the major ways that we seek to avoid excessive and inflationary booms and harsh recessionary busts. There is strong evidence that financial innovation and deregulation has already made that task harder, with consequent costs for the economy. If we proceed to total deregulation of financial services, we will lose even this governor on excessive economic swings, and revert to the terrible boom-andbust cycles we had up through the Great Depression. We can offset the effects of deregulation somewhat by, as I have proposed in legislation, shifting the targets of monetary policy from arbitrary monetary and credit aggregates to economic growth. But, for monetary restraint or stimulus to have an even and uniform on the economy, we must assure that the Federal Reserve has potential influence over growth in all parts of financial services. This cannot occur if the lines between finances and commerce become too blurred unless we are willing to accept a more managed economy with centralized planning, federal controls over business activity, credit arrangments, and risk managment including controls over profits, and compensation. I am not at all sure such a scheme is better than the one we presently have; in some very large measure, however, it is one which your industry will have decide for all of just for yourselves. As you ponder and discuss the questions of state financial supervisory regulation, dual businesses and regulation, banks vs. non-bank banks, deposit taking powers and regulation today, I hope that you will keep these issues in mind. Your industry is uniquely situated on the borderline between commerce and banking, and where you go will have implications for the whole financial services industry. Let me conclude, however, by expressing the hope that you will not spend all your time pondering and discussing these issues. I hope that you will also take the time to get out and see this great city of ours, with its magnificent cultural, historical, and public landmarks. Washington, D.C. is my hometown, and I want you to share some of my pleasure and delight in what it has to offer to those of us who live here everyday.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  WALTER E FAUNTROY. 0 C.. CHAIRMAN STEPHEN L NEAL. N C. DOUG BARNARD JR , GA CARROLL HUBBARD. JR . KY BILL PATMAN TEX. BUDDY ROEMER. LA BRUCE A MORPIS04. CONN. JIM COOPER TENN THOMAS R CARPER. DEL H2-)09 ANNEX NO 2 wASHiNGTON D C 20 51S (202) 226-731S  GEORGE HANSEN. IDAHO RON PAUL. TEX BILL McCOLLUM FLA. BILL LOWERY CALIF JOHN HILER. IND  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-EIGHTH CONGRESS  WASHINGTON, D.C. 20 5 1 5  May 20, 1983  Dear Colleague: A number of you have raised questions concerning the use of those provisions of the Monetary Control Act of 1980 which authorizes the Federal Reserve to "invest in obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof,... As Chairman of the Subcommittee on Domestic Monetary Policy (which has jurisdiction over the Federal Reserve), I directed that the Subcommittee exercise its oversight authority to ascertain the use of this provision, to weigh the actual benefits of this provision against potential abuse, to provide further guidance to the Federal Reserve in the continued use of this authority, and to consider whether any additional amendments would be necessary or appropriate. This is the Report of the Subcommittee on these matters which has been prepared under my direction. Specifically, this Report states that this provision aids in the more efficient management of Federal Reserve assets and that the Federal Reserve has exercised this authority in a manner consistent with this role. The Report finds no credible evidence of a broader use of this authority to monetize foreign debts as has been alleged, and no sign of any abuse in its use. This Report recommends that the use of foreign currency assets as collateral for Federal Reserve Notes be governed by more stringent guidelines to be set by the FOMC so as to limit the practice to unusual and exigent circumstances as long as a collateral requirement is maintained. The Report further recommends that consideration be given to the abolition of this collateral requirement and directs the staff to draft legislation towards that end. Since the preparation of this Report, I have introduced H.R. 2850, a bill to amend the Federal Reserve Act to provide flexibility in the issuance of Federal Reserve notes in order to assure that the Nation will have an adequate supply of currency. Therefore, in addition to the Report, I have included a copy of the bill, a section-by-section analysis, and a Ramseyer showing changes which would be made to existing law by H.R. 2850. I commend these materials to your reading and urge that you cI ntact the Subcommittee for such additional information as you might need to meet the inquiries of your constituents.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely yours, •C"..  7  Walter E. Fauntroy Chairman, Subcommittee ori Domestic Monetary Policy  REMARKS OF THE HONORABLE WALTER E. FAUNTROY ON H.R. 2850, FEDERAL RESERVE COLLATERALIZATION In The House of Representatives Thursday, May 19, 1983  •  Mr. Speaker. I am pleased to have introduced H.R. 2850, a bill to amend the Federal Reserve Act to provide flexibility in the issuance of Federal Reserve notes in order to assure that the nation will at all times have an adequate supply of currency by eliminating the present requirement that Federal Reserve notes be collateralized. Members may recall that hearings were recently held by the Subcommittee on Domestic Monetary Policy on the use of certain provisions of the Federal Reserve Act as amended by section 105(b)(2) of the Monetary Control Act of 1980 which authorized the Federal Reserve to invest "in obligations of, or fully guaranteed as to principal and interest by, a foreign government or agency thereof,..." One of the issues which the Subcommittee explored in connection with the acquisition of foreign obligations was the use of foreign currency assets as collateral for Federal Reserve notes. All Federal Reserve notes are first and paramount liens on all assets of the Federal Reserve Bank that issued them and are obligations of the United States aside from any collateral which may lie behind them. The Subcommittee discovered that the System as a whole has always had adequate collateral of such form as to eliminate the need for the use of foreign currency assets. However, the distribution of the collateral among the banks is not necessarily in proportion to their note liabilities, which may be dependent upon seasonal and other fluctuations in demands for currency. Intermittent use of acquired foreign securities as collateral for these disproportional currency demands can avoid the cost and inconvenience If inter-Reserve Bank exchanges of other assets. To date, four Federal Reserve Banks have used foreign currency assets as collateral on various occasions. This use of foreign currency assets is a purely technical phenomenon intended to facilitate the use as collateral of all Federal Reserve System assets in the most economical and orderly manner. These cases, nonetheless, point to the difficulties of assuring adequate collateral for Federal Reserve Bank issues of currency in response to fluctuating public demand. Such difficulties are so far minor and easily surmountable, but they have a potential to become more serious. People place their money in savings and checking accounts with the confident expectation that these balances can be converted to currency at any time. However, if people's desire to convert savings and checking S..nces into currency is unexpectedly strong, insufficient collateral could mean the Federal Reserve System would be technically unable to provide enough currency to meet public demand. Such a shortage of currency could have severe adverse consequences for the public's confidence in the financial system. Indeed, this possibility will become greater as the reduction in reserve requirements progresses. Further changes in collateralization requirements are, therefore, needed. Indeed, it now makes sense to abolish the collateral requirement, which is an anachronism that is no longer appropriate or necessary.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  98TH CONGRESS 1ST SESSION  R.2850 H•R •  To amend the Federal Reserve Act to provide flexibility in the issuance of Federal Reserve notes in order to assure that the Nation will have an adequate supply of currency.  IN TILE HOUSE OF REPRESENTATIVES MAY 2, 1983 FAUNTROY introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs  A BILL To amend the Federal Reserve Act to provide flexibility in the issuance of Federal Reserve notes in order to assure that the Nation will have an adequate supply of currency. 1  Be it enacted by the Senate and House of Representa-  2 tives of the United States of America in Congress assembled, 3 That (a) the second paragraph of section 16 of the Federal 4 Reserve Act (12 U.S.C. 412) is amended by striking out all  5 that follows the first sentence and inserting in lieu thereof the 6 following: "Collateral shall not be required for Federal Re-  7 serve notes.". 8  (b) The first sentence of the fourth paragraph of section  9 16 of the Federal Reserve Act (12 U.S.C. 414) is amended  2 1 by striking out "less the amount of gold certificates held by 2 the Federal Reserve agent as collateral security.". 3  (c) The first sentence of the sixth paragraph of section  . U.S.C. 416) is hereby 4 16 of the Federal Reserve Act (12 5 repealed.  •  SECTION-BY-SECTION ANALYSIS H.R. 2850 : a bill to provide flexibility in the issuance of Federal Reserve notes to assure that the nation will have an adequate supply of currency. (a) amends Section 16, paragraph 2, of the Federal Reserve Act (12 USC 412) by striking all text following the first sentence and inserting in lieu thereof the following words: "Collateral shall not be required for Federal Reserve notes." eliminates the collateral requirement by striking out the requirement that the Federal Reserve set aside collateral equal to the amount/sum of Federal Reserve notes issued and the specifications of what can be used as collateral. Inserted in place of this is a simple statement that collateral is no longer required for Federal Reserve notes. (b) amends Section 16, paragraph 4, by striking the words "less the amount of gold certificates held by the Federal Reserve agent as collateral security" and inserting in lieu thereof a period. Section 2 is a technical amendment to conform this provision to the elimination of the collateral requirement. As collateral would no longer be required, the need for gold certificates as collateral security would likewise be eliminated. (c) amends Section 16, paragraph 6, by striking the first sentence. Because collateral has been eliminated, this provision becomes redundant and thus, the provision in Section 16, paragraph 6 (the sentence referring to the withdrawal of the substitution provision for collateral with local Federal Reserve agents) has been eliminated. It is no longer necessary to have the sentence because collateral is not required and therefore a substitute for collateral would not be needed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  V  SECTION 16 -- NOTE ISSUES 1.  Issuance of Federal Reserve Notes; Nature of Obligation; Where Redeemable  Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are hereby authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank. 2.  Application for Notes by Federal Reserve Banks  Any Federal Reserve bank may make application to the local Federal Reserve agent for such amount of the Federal Reserve notes hereinbefore provided for as it may require. Sueh-a1904eat*eR-5hal; be-aeeeRipaRed-wi-th-a-teRder-te-the-Teeal—FedeFa;-Resepye-ageRt-ef eefl-aefcal--4,9-affleuRt-equal-te-the-suffi-ef-the-Fedepa;-ReseFrie-Retes thus-ap04ed-fer-and-4ssued-pursuant-te-sueh-ap04eat*eRT—The e(341-ateFal-seeuF4ty-tHus-effeped-shaTT-be-RetesT-dFafts3-134;;s-ef emehaRge3-elc-aeeeptaRees-aequi-ped-upideF-the-pFey4seRs-ef-seet4eR-;3 ef-th4s-Aet-i-er-6*;;s-ef-exehaRge-eAdersed-by-a-membeic-bank-ef-aRy FederaT-ReseFve-d4ste4-et-aFid-puPehased-HAder-the-pFey4s*ens-ef-seet*eR 44-ef-th4s-Aet-T-eF-baRkeFsl-aeeeptamees-pdFehased-bAdeF-the-pFev4s4ens ef-sad-seetien-4-41--eF-gel-d-eeFt444-eates T -er-Spee4a-DFaw4Fig-R4ght eeicti.“eates3-eF-amy-eb“gat4eRs-wi9409-aFe-dFeet-elal4ga“eRs-ef3-eF are-ful4y-tiapanteed-as-te-pri-ne*paT-aRd-RteFest-by-T-the-YRted States-eic-any-a9e9ey-tHereef-er-assets-that-Federa4.-ReseFve-bar9ks-FRay puFehase-ee-he;d-undep-seetem-4-4-ef-ths-Aet7--Im-Re-eYeRt-sha;;-sseh e(94-1-ateFa4.-seG6iP“y-be-;ess-tigaR-the-ameuRt-e-FedeFa;-Reserve-Retes app4.ed-feFT--The-Fedelca;-Resetcye-agemt-shal4-eaeh-day-Ret*fy-the BeaFd-ef-GeyeFmers-ef-the-Federa-Reseicye-Systesi-ef-all-4ssues-aRd w4thdFawas-ef-Federa4.-ReseFye-netes-te-a9d-by-the-Fedeica;-Re5erye bamk-te-wh409-he-4s-aeeredi-ted7--The-sa*d-Beard-ef-GeyeFAers-ef-the Fedeical-Reselcve-System-may-at-aRy-t4me-ealT-upeR-a-Federal—Reserve baRk-fer-add4t4enal—seeuF4ty-te-preteet-the-Fedepa;-ReseFve-metes 4sstled-te-4t7--Ge4.4.atepa4.—sha44-Fiet-be-reqH4Fed-feF-Federa4.-Reserve Retes-wheh-ape-he;d-4R-te-Yaults-ef-FederaT-ReseFve-baRks7 Collateral shall not be required for Federal Reserve notes. 3.  Distinctive Letter on Notes; Destruction of Unfit Notes  Federal Reserve notes shall bear upon their faces a distinctive letter and serial number which shall be assigned by the Board of Governors of the Federal Reserve System to each Federal Reserve bank. Federal Reserve notes unfit for circulation shall be canceled, destroyed, and accounted for under procedures prescribed and at locations designated by the Secretary of the Treasury. Upon destruction of such notes, credit with respect thereto shall be apportioned among the twelve Federal Reserve banks as determined by the Board of Governors of the Federal Reserve System.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4.  Granting Right to Issue Notes  The Board of Governors of the Federal Reserve System shall have the right, acting through the Federal Reserve agent, to grant in whole or in part, or to reject entirely the application of any Federal Reserve bank for Federal Reserve notes; but to the extent that such application may be granted the Board of Governors of the Federal Reserve System shall, through its local Federal Reserve agent, supply Federal Reserve notes to the banks so applying, and such bank shall be charged with the amount of the notes issued to it and shall pay such rate of interest as may be established by the Board of Governors of the Federal Reserve System on only that amount of such notes which equals the total amount of its outstanding Federal Reserv e notes Tess-the-aFReHRt-ef-ged-eeFt44-eaes-hed-by-the-FedeFa Resepye-agent--as-eel4atepa;-seeaFty. Federal Reserve notes issued to any such bank shall, upon delivery, together with such notes of such Federal Reserve bank as may be issued under section 18 of this Act upon security of United States 2 per centum Government bonds, become a first and paramount lien on all the assets of such bank. 5.  Deposit to Reduce Liability for Outstanding Notes  Any Federal Reserve bank may at any time reduce its liability for outstanding Federal Reserve notes by depositing with the Federal Reserve agent its Federal Reserve notes, gold certificates, Special Drawing Right certificates, or lawful money of the United States. Federal Reserve notes so deposited shall not be reiss ued, except upon compliance with the conditions of an original issue. The liability of a Federal Reserve bank with respect to its outstanding Federal Reserve notes shall be reduced by any amount paid by such bank to the Secretary of the Treasury under section 4 of the Old Series Currency Adjustment Act. 6.  Substitution of Collateral; Retirement of Federal Reserv e Notes  ARy- FedeFaT-Feserve-baRk-may-at-i-ts-d*seFet4.(9R-wt hdFaw-eel;ateraT depes*ted-wth-the-eeal-Federal—resepve-ageRt-fer-the-pFeteet4eR ef-44s-FederaT-reserye-Retes-ssed-te-44-aAd-sha“-at-the -same-t4ffle subst4tute-therefeic-etheF-ee“ateral-ef-equal-ameHmt-wth-the-appreya; ef-the-Federal-resepye-agent-biRdeF-Pe9u4at*eRs-te-be-pic esEF4bed-by-the Beapd-ef-GeYeFFieFs-ef-the-FedeFa;-ReseFye-SystefflT Any Federal reserv bank may retire any of its Federal reserve notes by depositing them e with the Federal reserve agent or with the Treasurer of the United State s, and such Federal reserve bank shall thereupon be entitled to receiv e back the collateral deposited with the Federal reserve agent for the security of such notes. Any Federal Reserve bank shall further be entitled to receive back the collateral deposited with the Federal Reserve agent for the security of any notes with respect to which such bank has made payment to the Secretary of the Treasury under sectio n 4 of the Old Series Currency adjustment Act. Federal reserve notes so deposited shall not be reissued except upon compliance with the conditions of an original issue.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • •.,. ..• Of GON.•.. ..•  BOARD OF GOVERNORS OF THE  .' . 1 1— • Z: ,..). ,44,.  'co • • .0 •,, •A ..1.e:„   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER  CHAIRMAN  July 20, 1983  um The Honorable Bill McColl s House of Representative 5 Washington, D. C. 2051 Dear Bill: u the attached table yo g in nd se st si re t no d I coul quota IMF's use of the U.S. showing estimates of the see, in 14 of those n ca u yo As s. ar ye 30 over the past t repayments from the ne ed iv ce re es at St ed it years the Un IMF. Sinc  ely,  at '' tei/n  Attachment  bcc:  Mr. Truman Mrs. Mallardi (2)  ,..\...„..,I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Estimates of IMF Drawings (-) 5, Quota Subscription, and Repayments (+) of 11, of dollars)  Calendar Years 1953 1954 1955 1956 1957 1958 1959  + + +  1960 1961 1962 1963 1964 1965 1966 1967 1968 1969  +  +  90 53 150 57 37 20 6  450 140 + 630 20 + + 270 + 170 + 296 90 - 870 -1,030  Fiscal Years 1970 1971 1972 1973 1974 1975 1976 1977* 1978 1979 1980 1981 1982  800 + 910 + 990 50 - 470 -1,070 -1,205 - 810 + 960 +1,330 - 410 -2,360 -1,825  arter *Includes transitional qu  July 20, 1983  The Honorable Paul S. Trible, Jr. United States Senate 20510 Washington, D.C. A   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Senator Trible: Enclosed are my response  to the questions  you submitted at my confirmation hearing last week. I have also furnished a copy of my responses to the Committee for inclusion in the record of the hearing. Sincerely, .  Enclosure  AFC:pjt bcc: Mr. Axilrod Mr. Truman Mrs. Mallardi (2)f/  ted that In February before this committee, you sta will need to be "over time the growth of money and credit able price stability." reduced to encourage a return to reason ll require that we You also said that financial stability "wi because, sooner or avoid excessive growth of money and credit the lower interest later, that growth will be the enemy of rates and stability we need." icy which How do those statements square with Fed pol year ending in May, allowed M1 to grow 12.2 percent during the and now has M1 way above its target? s have made Recent institutional and behavioral change behavior of money and it even more important to look at the whether their growth credit aggregates as a group in assessing sonable price starates are consistent with a return to rea bility.  financial debt Growth rates of M2, M3, and domestic non  ugh their growth has are all consistent with their ranges, tho   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  picked up somewhat recently. run well M1 is the only aggregate whose growth has above target. factors.  This has been accepted because of several  tinuation Looking at M1 itself, there has been con  decline in its into this year of the very unusual, large velocity that developed last year.  This decline in velocity,  related at least in which may be abating now, appears to he -in effect interest-bearing part to the fact that NOW accountswide basis at the checking accounts introduced on a nation important component of beginning of 1981--have come to be an that aggregate.  year, As market rates declined sharply last  ble on NOW accounts and the spread between interest rates availa more than proportionother outlets for liquid funds narrowed (with a lag) for NOW ately, apparently stimulating demand accounts relative to income.  -2-  Other factors may also have been important for a time, rincluding the high degree of economic and financial unce tainty.  You will recall that, because of these reasons, we  for a indicated in our earlier testimony less emphasis would, s about movetime, be placed on Ml alone, and that the judgment ysis of ments in the aggregate would need to be tempered by anal business and financial developments generally.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  While the underlying trend in M1 may be shifting, that should be a more gradual process.  We indeed should be alert to  s in MI the probability that, cyclically, sizable increase ce, are "velocity," more in accord with historical experien likely.  Consequently, we look toward substantial slowing of  will be prethe recent rate of increase in the targets we senting. Taking account of the aggregates as a whole and insticonsistent with tutional changes, I believe we are on a course time--and we must encouraging a return to price stability over remain so.  The weight placed on M1 in particular will he  reviewed regularly.  Since early May, long term interest rates have headed upward. Do you think that rapid money growth, and the failure to keep all money measures within their target ranges, has contributed to this by worsening inflationary expectations and creating uncertainty about what the Fed is up to? I believe the recent rise in long-term rates reflects several factors.  credit will remain consistent with progress toward price stability, in an environment of accelerated real economic growth, the posture of monetary policy has been slightly less accommodative in recent months; in other words, pressure on bank   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  To help assure that growth in money and  reserve positions has been increased to a degree.  This in  itself has been accompanied by some rise in money market rates which often gives rise to some temporary sympathetic response in longer-term rates.  The recent rise in long rates also  appears to reflect the impact of the acceleration in economic recovery on actual credit demands, which were appreciable in the second quarter, and anticipation of further increases in the future.  The potential conflict with continuing, large  federal credit demands is, of course, a matter of great concern, and the speed of the economic recovery has tended to advance those concerns. I do not exclude some influence from anticipations that more rapid monetary growth might induce further Federal Reserve actions to restrain money and credit growth.  As that  implies, in an expanding economy with heavy Treasury deficits, action to restrain money growth tends to increase market pressures, even though, in the long run, the effects on inflation   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2-  and interest rates may be favorable.  I also agree that con-  siderable skepticism remains about the inflation outlook, but I would not single out recent growth in the aggregates as the principal or major source of new concerns.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Recent newspaper reports say that Administration officials want the Federal Reserve to restrain monetary growth through open market operations, but not by raising the discount rate. Do you agree with that advice? Whether the Federal Reserve should raise the discount rate in the process of restraining money growth depends on many factors, such as probable "announcement" effects on attitudes in domestic and international financial markets as well as the more routine problems connected with effective administration of the discount window.  But, basically, it depends on an  assessment of whether a strong surge in demand for credit at the discount window by depository institutions, given the relation of the discount rate to market rates, is itself fueling excessive monetary expansion.  If it is, the restraint on money  growth from holding back on provision of reserves through open market operations--which is the fundamental means of controlling money--may need to be reinforced by discount rate action. That is a judgment that can be made only in the context of particular circumstances, taking account of overall economic and financial conditions. tools are complementary.  In most instances, over time, the  What role does the international debt situation play in the Fed's reluctance to slow the growth of money and credit? I have pointed to the debt problems of many countries in the developing world as one of the major threats to financial stability and to a healthy recovery of the U.S. and world economy.  These problems are among the many factors that the  FOMC takes into account in reaching decisions on the implementation of monetary policy.  In the short run, increases in  interest rates from any source or any slowing of economic growth does tend to complicate the problems of international   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  finance, and that factor has been weighed by members of the Committee.  Over time, however, I believe lower interest rates  and sustained  _jr.owth will depend upon success in containing  inflation, and that consideration is a major element in policy.  Do you conceive of rapid money growth in the United States as a way to alleviate international debt problems?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  No.  The ultimate resolution of the serious interna-  will tional debt problems confronting the world economy today depend in part on achieving a sustained, non-inflationary expansion of the U.S. economy.  The contribution that U.S. mone-  tary policy can make to such an expansion is to ensure that which progress against inflation is consolidated and extended, over will require restraint on the growth of money and credit time.  In this context, rapid monetary growth in the United  ems. States would not long alleviate international debt probl proIndeed, excessive growth would ultimately exacerbate those blems if it were to conLribute to a rekindling of U.S. infla tion.  A number of suggestions have been made that there rve's should be an independent audit of the Federal Rese finances and policies. Would you support such an audit? or redundant?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Or is it unnecessary  I believe that there are an adequate number of audits of the Federal Reserve. several levels.  The System is already reviewed at  An independent outside public accounting firm  rdance reviews the financial statements of the Board in acco with generally accepted auditing standards.  In addition, the  ts of the U.S. General Accounting Office performs numerous audi Board and the Reserve Banks.  These audits include reviews of  vities in the various programs of the System including acti supervisory, consumer and pricing areas.  In particular areas,  times initiated such as "priced services" we ourselves have some independent reviews. The Board also conducts annual examinations of the Bank in accor"accounts, books, and affairs" of each Reserve rve Act. dance with the provisions of the Federal Rese  In  audits of the addition, the GAO performs various special ress. Federal Reserve as requested by committees of Cong lly Our monetary policies are, of course, continua and debate. under Congressional and public scrutiny  Accord-  for additional ingly, I do not believe that there is any need regular audits of the Federal Reserve.  v.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 20, 1983  The Honorable Jim Wright Majority Leader House of Representatives Washington, D.C. 20515 Dear Mr. Wright: The Board of Governors of the Federal Reserve System is pleased to forward to you its Monetary Policy Report to the Congress pursuant to the Full Employment and Balanced Growth Act of 1978. Sincerely,  Enclosure DJW:mrk bcc: Mrs. Mallardi (2) Identical letters also sent to the attached list.  House Jim Wright Majority Leader  (H-148 Capitol Bldg.)  Robert H. Michel Minority Leader (H-230 Capitol Bldg.) Thomas S. Foley Majority Whip (H-114 Capitol Bldg.) Trent Lott Minority Whip  (1622 LHOB)  ernand J. St Germain, Chairman Committee on Banking, Finance and Urban Affairs  (2129 RHOB)  ‘/Ohalmers P. Wylie, Ranking Minority Member Committee on Banking, Finance and Urban Affairs  (2129 RHOB)  James R. Jones, Chairman Committee on the Budget (214 House Annex I) Delbert L. Latta, Ranking Minority Member Committee on the Budget (214 House Annex I) Lee H. Hamilton, Vice Chairman Joint Economic Committee (SD -G01) alter E. Fauntroy, Chairman Subcommittee on Domestic Monetary Policy (H2-109 HOB Annex II) of House Banking Dan Rostenkowski, Chairman Committee on Ways and Means  (1102 LHOB)  Barber B. Conable, Ranking Minority Member Committee on Ways and Means (1102 LHOB) Doug Barnard, Jr., Chairman Subcommittee on Commerce, Consumer and Monetary Affairs of House Gov't. Operations Jamie L. Whitten, Chairman Committee on Appropriations  (B-377 RHOB)  (H-218 Capitol Bldg.)  Silvio 0. Conte, Ranking Minority Member Committee on Appropriations (H-218 Capitol Bldg.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Senate Howard H. Baker, Jr. (S-233 Capitol Bldg.) Majority Leader Robert C. Byrd Minority Leader Ted Stevens Majority Whip Alan Cranston Minority Whip  (S-208 Capitol Bldg.) (S-229 Capitol Bldg.) (S-148 Capitol Bldg.)  Strom Thurmond President Pro Tempore  (SR-218)  ‘Aake Garn, Chairman Committee on Banking, Housing and Urban Affairs  (SD-534)  \,4illiam Proxmire, Ranking Minority Member Committee on Banking, Housing and Urban Affairs  (SD-534)  Robert Dole, Chairman Committee on Finance (SD -207) Russell B. Long, Ranking Minority Member Committee on Finance (SD-207) Pete V. Domenici, Chairman Committee on the Budget (203 Carroll ALMS Annex) Lawton Chiles, Ranking Minority Member Committee on the Budget (203 Carroll Arms Annex) Roger W. Jepsen, Chairman Joint Economic Committee (SD-G01) Lloyd Bentsen, Senate Ranking Minority Member Joint Economic Committee (SD-G01) Mark 0. Hatfield, Chairman Committee on Appropriations  (SD-118)  John C. Stennis, Ranking Minority Member Committee on Appropriations (SD-118)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 20, 1983  The Honorable George Bush President of the United States Senate Washington, D.C. 20510 Dear Mr. Vice President: The Board is pleased to submit its Monetary Policy and Report to the Congress pursuant to the Full Employment Balanced Growth Act of 1978. Sincerely,  Enclosure  DJW:mrk bcc: Mrs. Mallardi (2) Identical ltr. also sent to Thomas P. O'Neill, Jr. Speaker of the House of Representatives (with 2 copies of the report)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, a C. 20551 PAUL A. VOLCKER CHAIRMAN  July 20, 1983  um The Honorable Bill McColl House of Representatives Washington, D. C. 20515 Dear Bill: you the attached table I could not resist sending F's use of the U.S. quota IM e th of s te ma ti es g in ow sh e u can see, in 14 of thos yo As s. ar ye 30 st pa e th over e ed net repayments from th iv ce re es at St ed it Un e th s year IMF. i nc Si  - ely,  atd—  Attachment  bcc:  Mr. Truman Mrs. Mallardi (2) v/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Estimates of IMF Drawings (-) Quota Subscription and Repayments (±) of U,S.  Calendar Years 1953 1954 1955 1956 1957 1958 1959  + + +  1960 1961 1962 1963 1964 1965 1966 1967 1968 1969  +  +  90 53 150 57 37 20 6  450 140 + 630 20 + + 270 + 170 + 296 90 - 870 -1,030  Fiscal Years 1970 1971 1972 1973 1974 1975 1976 1977* 1978 1979 1980 1981 1982  800 + 910 + 990 50 - 470 -1,070 -1,205 - 810 + 960 +1,330 - 410 -2,360 -1,825  arter *Includes transitional qu  July 20, 1963  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House.of Representatives 20515 Washington, D.C. Dear Chairman St Germain: As the House of Representatives prepares to take un the International Pecovery and Financial Stability Act, prompt H.R. 2q57, I would like to underline the importance of and favorable action by the Conaress on the proposed increase and in the U.S. quota in the International Monetary Fund (PAP) to in the U.S. com-nitment to the IMP's General Arranaernents Borrow. I helievn U.S. sunport for this increase in IMF in resources is essential to maintain stability and confidence the international financial system at this critical time. As you %rimy, an extraordinary cooperative effort is underway to deal with the strains arising out of the heavy indebtedness of many developing countries. That effort by the involves continuing action by debtors and creditors, and governments and central banks of leading countries. Put the ilr is the linchpin for the entire effort, nroviding, as part of its leadership role, a critically needed margin of finan cing. Current and prospective demands on the Fund growing out of this process could well exhaust its usable present resources. To strengthen its ability to deal with this situation and to maintain a stable international financial system, these resources must he increased. I cannot emnhasize too strongly that failure of the U.S. to particinate in providing the IMF with adequate resources to do its lob, as an essential part of an internarn tional effort loinel by virtually every country of the WestP torld, would deal a devastating blow to the effort to manaie se the international financial situation, with clearly adver consequences for U.S. credit markets and our own •economic growth. Sincerely, EMT:pjt  bcc:  Mr. Truman Mrs. Mallardi (2)  SIPaul A. Volc_ket  Identical letter also sent to Cong. Wylie.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 18, 1983  The Honorable John H. Chafee United States Senate Washington, D.C. 20510 Dear Senator Chafee: Thank you for your letters of June 30 and July 13 concerning the warrants held by the U.S. government to purchase Chrysler Corporation common stock at $13 per share. As you are aware, the Loan Guarantee Board has not yet formally resolved the many and complex issues connected with the warrants, but we are working toward an expeditious resolution of this matter. My position has been and remains that the U.S. taxpayer should receive fair value for the warrants in compensation for risk he or she took in guaranteeing the original loans to Chrysler. I can assure you we are working as quickly as possible toward this end. Thank you again for sharing your views. Sincerely,  Saaul A,Vol_cket  GM:DLK:JLK:mrk (#V-120 & V-127) bcc:  Mr. Kohn Ms. Mallinson Mr. Kichline Mrs. Mallardi (2)/  ROBERT J. DOLE, KANS., CHAIRMAN BOB PACK WOOD, OREG.  RUSSELL B. LONG, LA.  WILLIAM V. ROTH, JR., DEL.  LLOYD BENTSEN, TEX.  JOHN C. DANFORTH, MO.  SPARK M. MATSUNAGA, HAWAII  JOHN H. CHAFEE, R.I.  DANIEL PATRICK MOYNIHAN, N.Y. MAX BAUCUS, MONT.  JOHN HEINZ, PA. MALCOLM  WALLOP, WYO.  DAVID L. BOREN, OKLA.  DAVID DURENBERGER, MINN.  BILL BRADLEY, N.J.  WILLIAM L. ARMSTRONG. COLO.  GEORGE J. MITCHELL, MAINE  STEVEN D. SYMMS, IDAHO  DAVID PRYOR, ARK.  CHARLES E. GRASSLEY, IOWA  9Jrnifeb Zfalez Zertate COMMITTEE ON FINANCE WASHINGTON, D.C. 20510  ROBERT E. LIGHTHIZER, CHIEF COUNSEL MICHAEL STERN, MINORITY STAFF DIRECTOR  July 13, 1983  The Honorable Paul Volcker Chairman and Governor Federal Reserve Board of Governors Federal Reserve Building Washington, D.C. 20511 Dear Mr. Chairman: You will recall last month I wrote to you and other members of the Chrysler Loan Guarantee Board to urge the Board to act promptly to market in an orderly fashion the warrants which entitle the federal government to purchase Chrysler Corporation stock for $13.00 per share. Given the current market price of Chrysler stock, marketing these warrants would yield the taxpayers of the United States a potential profit of over a quarter of a billion dollars. While I have yet to receive a response, press accounts indicate the Board is preparing a plan to sell the warrants. I hope that this is true. While I do not expect that the warrants be sold in one block, I would hope that the Board will expeditiously agree on a plan for their orderly disposal. I am writing today to advise you, in advance, that if the Board fails to act, it will be my intention to offer an amendment in the Senate to the Treasury and Postal Service Appropriation bill to reduce the Treasury Department appropriation by $250 million--an amount the federal government could be expected to obtain by marketing these warrants--and to direct the government to sell them, with the proceeds to accrue to the Treasury in lieu of the appropriation. Such an amendment, of course, would not be necessary should the Board decide, in the interim, to sell the warrants, an action I believe would be preferable to a legislative directive. I look forward to hearing from you. Sincerely,  Joh H. Chafee Uni ed States Senator JHC/dst  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 18, 1983  The Honorable Doug Barnard, Jr. Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives 20515 Washington, D.C. Dear Chairman Barnard: Thank you for your recent letter regarding your Subcommittee's oversight hearings on Conditions in the Legal Framewor  of the American Financial System.  I am pleased to let you know that Michael Bradfield, the Board's General Counsel, will be appearing on behalf of the Board on Thursday, July 21, at 9:30 a.m. Sincerely,  •  CO:DJW:pjt (#V-122) bcc: Mr. Bradfield Mrs. Mallardi (2)  itie~ WA:vvoi.  •it-0-4.;+-001A.IN•vb JUDD GHtuG. NH WILLIAM F CLINGER. JR. PA. TOM LEWIS. FLA.  NINETY-EIGHTH CONGRESS  DOul BAF1NARD. JR., GA , CHAIRMAN RONALD D COLEMAN, TEX JOHN ?A SPRATT. JR. S C JOHN CONYERS. JR., MICH ELLIOTT H LEVITAS GA HENRY A WAXMAN, CALIF  CJ44A4t.A.AZtiv  Congrea of tbe Vttiteb Otate5S  MAJORITY-4202) 225-4407  3Douge of RepreantatibeS COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  • •  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, DC.20515  July 6, 1983  Hon. Paul Volcker Chairman Federal Reserve Board Washington, D.C. 20551 Dear Chairman Volcker: The subcommittee on Commerce, Consumer, and Monetary Affairs of the Committee on Government Operations will hold hearings on July 19, 20, and 21, 1983, with respect to what is widely held to be rapidly developing and massive confusion - which, nevertheless, might bring the benefits of innovation - across the legal framework of the American financial system and services industry. This situation, in turn, carries crucial implications for changes in underlying public policies related to such topics as: the safety and soundness of the entire structure; concentration levels of economic power; the convenience of financial services to corporate and non -corporate consumers; the lines of regulatory authority; and the basic fairness and clarity of the ground rules for "commerce", in that word's broad sense. I am writing to request your or your representative's testimony for the session commencing at 9:30 A.M., on July 21, 1983, in Room 2154 of the Rayburn House Office Building, on this general subject, especially and to the fullest extent possible concerning those more specific legal features set out in the attached memorandum of interrogatories. Although the subcommittee is interested in views on the advisability of macroalterations in declared public policies, such as the one which now supposedly is separating banking from other forms of commerce, our initial investigations will strongly stress examining the perceptions, if not the reality, of disorder in the structure of financial institutions law and their legalistic sources. Th2 subcommittee's very broad responsibility and, hence, the expansiveness of its inquest are dictated by three factors which we hope are held in mind as testimony is prepared. First, unlike other divisions of the House, it has clear oversight jurisdiction relating to all the key executive departments or agencies statutorily charged with administering the major laws establishing the national regulatory scheme for financial matters. Second, much, although not all, of the notion of disarray is being generated by either the long established policies of these authorities being turned to unexpected and more aggressive purposes by the private sector or by new policies being adopted or tacitly approved by these instrumentalities. Third, none of these authorities operate in an insular environment. Indeed, their activities can only be assayed in the complex context   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 of existing provisions of the U.S. Code and state statutes; an extensive and evolving body of case law; and legislation pending before both the Congress and the states. Judging from your recent statements before the Committee on Banking, Housing, and Urban Affairs of the Senate in its oversight hearings on "Conditions in the Financial Institutions Industry", your agency's answers to or observations on the attached questions will be essential to our endeavors. I acknowledge that with respect to some of these inquiries, you might be involved in litigation or other similarly sensitive circumstances. Nevertheless, I trust your usual maximum effort to cooperate will prevent voids in the agency's presentation. Additionally, if you wish to raise points of a legal nature, which you believe are important to the overall scope of the hearings but are not raised in the memorandum, I invite you to do so. I understand that a number of "moratorium" bills are pending in both chambers and that a far reaching financial reform bill is about to be introduced in the Senate, the general contents of which are well known. While brief views on these proposals would be expected, please let me restate that our primary interest is in an investigation of the law as we have it today and your views on its cogency or lack thereof. We would appreciate receiving 100 copies of your written testimony at the Commerce, Consumer, and Monetary Affairs Subcommittee office (Room B-377 of the Rayburn House Office Building) at least 24 hours prior to the hearing. Also, upon receipt of this invitation, would you be so kind as to have the appropriate member of your staff contact Richard Peterson at the subcommittee, (202) 2254407? Sincerely,  Doug Ch(1, DB:dwp:v Attachment   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rnard, Jr. an  Memorandum of Interrogatories Hearings Before the Subcommittee on Commerce, Consumer, and Monetary Affairs Committee on Government Operations U.S. House of Representatives July 19, 20, and 21, 1983 on Conditions in the Legal Framework of the American Financial System and Service Industry  These interrogatories are multi-purpose. They are the same for all witnesses on all three days and also serve as briefing documents for members of the subcommittee and their staffs. Consequently, a given witness might have to make a common sense rendering of the text to establish the points of applicability to him. I.  Nonbank Banks and the Bank Holding Company Act (BHCA), in General  The BHCA at 12 U.S.C. 1841(c) defines a "bank" to mean "any instituwhich tion organized under the law of the United States, any State .(1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans." Given a number of nuances from specific situation to specific situation, many purchasers or would-be charterers of banking institutions organized under the law of the United States or a State of the United States are claiming such institutions would not fall under 12 U.S.C. 1841(c)--and thus the entire BHCA and its clauses "separating banking and commerce" would the be Largely obviated--if one forewent either (1) or (2) above. These are claims which have given rise to the phrase "nonbank banks," institutions chartered as banks, but not banks for the purposes of the BHCA. A.  Background--The Business of Making Commercial Loans  Many of the assertions of avoidance of the BHCA through nonbank banks are being made on the grounds the institutions are not or would not be in the business of making commercial loans due to voluntary agreement not to engage in that business. In answering the questions below, please hold in mind the following historical factors. (1) In a letter dated July 1, 1971, the Federal Reserve stated that a bank would not be covered by the BHCA if it terminated its commercial loan business. The letter also stated the Board's view that: Commercial loans are considered all loans to individuals or businesses, secured or unsecured, other than a loan the proceeds of which are used to acquire property or services used by the borrower for his own personal, family, or household purposes, or for charitable purposes.' (2) In a letter dated May 18, 1972, the Board stated that a bank would It not fall under the BHCA if it made only occasional commercial loans. also stated:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2. The Board understands that Boston Safe purchases "money market instruments", such as certificates of deposits, commercial paper, and bank acceptances. In the circumstances of this case, such transactions are not regarded as commercial loans for the purposes of the act. [Emphasis supplied] It continued: A further aspect of Boston Safe's operations is its engagement in Federal funds transactions which, according to Boston Safe's 1971 Report of Condition, amounted to $8 million of Federal funds sold outstanding as of December 31, 1971. The Board had previously taken the position and continues to adhere to the position, that the sale of Federal funds constitutes an unsecured loan. The Board has concluded, however, that the sale of Federal funds by Boston Safe is not tantamount to the making of a commercial loan for the purposes of the Act. [Emphasis supplied]' (3) In a letter dated January 26, 1976, the Board again issued an opinion relative to the meaning of "commercial loan." It concerned an inquiry whether "broker call loans" would constitute "commercial lending." The Board concluded that they would not.3 (4) In a series of letters and applications in 1982-83, very converse situations seem to have developed with respect to the acquisition of Lincoln State Bank of New Jersey. This is an existing nonmember bank, insured by the Federal Deposit Insurance Corporation (FDIC). In October 1982, Dreyfus Corporation, mainly a provider of investment advisory services but also the owner of distributors of certain kinds of securities (largely mutual funds) announced its intention to buy this bank. Under the Change in Bank Control Act (CIBCA), such a transaction is subject to FDIC approval, unless it results in the formation of a bank holding company, in which case Federal Reserve Board approval is required. See 12 U.S.C. 1817(j). Due to the fact chat it seemed unlikely the Board would approve such an acquisition since it could be deemed an avoidance of the separation of banking and commerce, Dreyfus, in its application, promised the FDIC it would divest Lincoln's commercial loans although it would continue to purchase certificates of deposit and similar market instruments. In a letter dated December 10, 1982, from the Federal Reserve to the FDIC, it was stated:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (T)he Board has consistently held that a commercial loan under the BHC Act is any loan other than a loan the proceeds of which are used to acquire property or services used by the borrower for personal, family, household, or charitable purposes. This definition of commercial loan is broad in scope and includes the purchase of such instruments as commercial naper, bankers acceptances, and certificates of deposit, the extension of broker call loans, the sale of federal funds, the deposit of interest bearing funds and similar lending vehicles. These transactions both in law and in substance, establish a debtor-creditor relationship between the business enterprizes for purposes that are not  3. s supplied.j4 personal, family, household or charitable. [Emphasi oved the In direct opposition to this letter, the FDIC appr Federal Reserve acquisition without referring the matter to the ed the Federal Board. Additionally, the FDIC directly challeng 1983. The Reserve's opinion in a letter dated January 3, Corporation stated: banks" and We have reviewed analogous acquisitions of "nonbank ng back a note that a number of clear precedents exist, dati pt from the defininumber of years, for the bank to be held exem based on divestition of "bank" in the Bank Holding Company Act the acquisition, ture of its commercial loan portfolio prior to making commercial and agreement not to engage in the business of iously to that loans in the future. By failing to object prev Board has, in now fairly routine practice, the Federal Reserve agreed with, our judgment, acquiesced in, if not expressly which the public a more limited definition of commercial loan on has come to rely. [Emphasis supplied.]5 in 1982-83, a very (5) In a series of letters and applications loped with respect to the converse situation also seems to have deve fus Corp. by the Comptroller chartering of a new national bank for the Drey troller dated December 14, of the Currency. In a letter to the Comp ested granting of the charter 1982, the Federal Reserve Board strongly prot . (The Board also asserted on the grounds it would violate the BHCA prohibits affiliation of violations of the Glass-Steagall Act, which ired to be members banks of member banks--all national banks being requ cipally engaged in certain the Federal Reserve System--and firms prin December 14, 1982, letter is securities activities. This aspect of the Holding Company Act, and covered in II. Banks, Nonbank Banks, the Bank the Glass-Steagall Act, below.) BHCA, the Comptroller, With respect to the claimed violation of the , noted that the Board's in granting th2 charter on February 4, 1983 al loan, "...appears to constitute latest int2rpretation of what is a commerci Board's past interpretations of the an abrupt and profound departure from the the new interpretation, "is not BHCA term...." He went on to note that ory of the BHCA." Additionally supported by the purpose or legislative hist troller had granted a charter to J. & and shortly before this action, the Comp ances but only to the extent W. Seligman Company in somewhat similar circumst company. On April 3, 1983, the Federal of ?emitting Seligman to form a trust ral Reserve stock to this newly Reserve indicated it would not issue Fede r the law for all national banks. chartered national bank, a requisite unde d that the issuance of such shares The Comptroller's office strongly countere Reserve then agreed to issue the was merely a "ministerial act." The Federal g monetary penalties against Seligman stock but with a clear threat of assessin ns of assorted statutes. To date, no atio viol for day per 00 $1,0 ible poss at a such penalties have been assessed.° testify, no litigation has been (6) /Is of the date of this invitation to best of the subcommittee's knowledge, brought by the Federal Reserve, to the fus National Bank, or Seligman. in the matters of Dreyfus/Lincoln, Drey umstances, it appears Prudential Additionally, in light of all these circ ey & Co., Merrill Lynch & Co., Aetna Insurance Company of America, J.C. Penn   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4. to Life and Casualty, and Beneficial Corp. have announced their intention ncoln.7 acquire banks under conditions similar to those pertaining to Dreyfus/Li  nt (7) In late May 1983, the Federal Reserve put out for comme Y, which would, an extensive amendment to 12 C.F.R. Part 225, Regulation on supposedly, impose its more expansive definition of commercial loan 1983. the FDIC and the Comptroller. Comments are due in late July B. Questions--The Business of Making Commercial Loans ions.) (Please do not consider Glass-Steagall issues regarding these quest opments (1) Is the above background an accurate summary of devel respecting "commercial loans" on the date of the hearing? What points of a legal nature would you add or correct? (2) Under the Change in Bank Control Act, was the FDIC's Bank of New Jersey, position, in allowing Dreyfus to acquire Lincoln State sound? (3) Under the Change in Bank Control Act and in light of the nal bank for Dreyfus Comptroller's general position in chartering a new natio rize the acquisition of Corporation, would the Comptroller be entitled to autho assuming other an existing national bank? Would he be compelled to, requirements of the Change in Bank Control Act were met? point of view, (4) What are the key differences, from a precedential FDIC under the Garn-St between industrial banks--which can be insured by the bank holding companies Germain Act; are long-standing, permitted activities for instruments--and under 4(c)(8) of the BHCA; and do invest in money market nonbank banks? the Federal Reserve's (5) Would the definition of "commercial loan" in Comptroller in light proposed revision of Regulation Y bind the FDIC and the to "...issue such of the Federal Reserve's power at 12 U.S.C. 1844(b) to administer and regulations and orders as may be necessary to enable it ons thereof."? carry out the purposes of this Act and prevent evasi r, and Federal (6) Have the diverse opinions of the FDIC, Comptrolle solely of Reserve on the meaning of "commercial loan" been matters rs of legislative administrative discretion, or are there statutes or matte history which have necessitated this diversity? fairness of the ground (7) Do you believe this diversity has impaired the rules for engaging in the depository business? ly define "commercial loan," direct (8) Should Congress more specifical reach a uniform definition, or the Comptroller, FDIC, and Federal Reserve to nation Council to reconcile empower the Federal Financial Institutions Exami there is severe inability to differences in this area as well as others when agree on crucial points?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5.  C.  Background--Accepting Demand Deposits  In Wilshire Oil Company v. Board of Governors of the Federal Reserve , System, 668 F.2d 732 (3rd Cir.) 1981, cert. den. 102 S.Ct. 2958 (1982) the court expressed a view that the Board's authority was very broad when it came to defining a "demand deposit." Under its interpretation to at 68 Fed. Res. Bull. 253, 253-54 (1982), NOW accounts were held be equivalent to "demand deposits," even though, technically, a financial institution holding a NOW account may require between 14 and 30 days prior notice before permitting a withdrawal from the account. Further, the Board, in its proposed revisions to Regulation Y, mentioned in I. above, would hold NOW accounts to be "demand deposits." However, in cases of the Comptroller's chartering of new national entities for the Dreyfus Corporation and Seligman Corporation, nothing resembling a "demand deposit" was going to be offered. D. Questions--Accepting Demand Deposits ons.) (Please do not consider Glass-Steagall issues regarding these questi ting (1) Is the above background an accurate summary of developments respec correct? "demand deposits"? What points of a legal nature would you add or d (2) In your view, is it proper to interpret a NOW account as a "deman deposit"? Why or why not? a (3) In cases where the institution plans to offer nothing resembling allowing "demand account," can the Board's authority under 12 U.S.C. 1844(b), h to cases of it to issue regulations to prevent evasion of the BHCA, stretc Board declare very short term certificates of deposit? For example, could the deposit" for a 30 day certificate of deposit to be equivalent to a "demand purposes of the BHGA? II.  Banks, Nonbank Banks, the Bank Holding Company Act, and the Glass-Steagall Act A.  Background  refer to The phrase "Glass-Steagall Act" can be used, technically, to it is used both the Banking Act of 1932 and the Banking Act of 1933. Here 32 of the Banking only in its more popular meaning--Sections 16, 20, 21, and Act of 1933, 48 Stat. 162 (1933). to three Section 16 restricts the investment activites of national banks quality securities areas--acting as agent; purchasing limited kinds of very high g in certain for its own account; relatively free underwriting and dealin for its own account. U.S. and state/municipal general obligations and securities by virtue of 12 The scope of this section covers only national banks and, U.S.C. 355, other members of the Federal Reserve System. entity engaged Section 20 prohibits bank affiliation with any business of underwriting, principally in investment banking activities--the business allowed by Section 16. distributing, and selling stocks and securities, except as   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  banks of the Federal Reserve The scope of this section covers only member s. System, including therefore, all national bank stment banking and receive Section 21 prohibits a bank to engage in inve under the limited exceptions of deposits at the same time, except as permitted nt securities and general Section 16, again mostly related to U.S. governme scope of this section covers obligation bonds of states and municipalites. The uding most especially, all banks and other depository institutions, incl FDIC insured nonmember commercial for this Part II of these interrogatories, of FDIC insured nonmember banks, though not necessarily the affiliates commercial banks. ates and certain other Section 32 prohibits interlocking director or individuals primarily relationships between member banks and firms of this section covers only engaged in investment banking. The scope all national banks. Federal Reserve member banks, and therefore, only held to be Broadly, the purpose of these clauses is comm been a number of judicial "to separate banking and commerce." There have interpretations of this cases, however, which have made specific ng." With example to separation--both "tightening" and "looseni v. Camp, 409 U.S. 617 (1971), "tightening," in Investment Company Institute national bank to operate a mutual regulations of the Comptroller permitting a Sections 16 and 21. fund were struck down as contravening both Governors of the Federal Reserve With example to "loosening," in Board of 405 U.S. 46 (1981), the Supreme Court System v. Investment Company Institute, h allows a bank holding company upheld a Federal Reserve Board regulation whic ed-end investment company despite to act as an investment adviser to a clos h, 404 F. Supp. 1091 (D.D.C. Section 21. In New York Stock Exchange v. Smit onal and Federal Reserve member 1975), the court upheld plans of both nati automatically deducted from a banks in which a certain amount of money is on stock of one or more companies customer's account and invested in the comm by the bank. In A.G. Becker, selected by the customer from a list supplied Reserve System, No. 80-2258 Inc. v. Board of Governors of the Federal legality of a bank's (D.C. Cir. Nov. 2, 1982), the court upheld the inter alia, that it was not a dealing in commercial paper on the grounds, eagall Act. The case is now on security" under the meaning of the Glass-St appeal to the Supreme Court. lopments either now--or In the regulatory arena, a number of deve newer suits. On August 26, 1982, the in all probability later could--involve rity Pacific National Bank to Comptroller approved an application by Secu act as a broker-dealer under the establish a discount brokerage service to is to engage in the purchase and sale Securities Exchange Act. The division in loans, and offer its services to marg ide prov es, riti secu of s type all of nt advice will not be provided. The the general public. However, investme e services are fully authorized for Comptroller's approval maintained that thes Glass-Steagall Act, which permits banks national banks under Section 16 of the rities without recourse, solely upon the to purchase and sell investment secu s. This approval is now under order, and for the account of customer Association v. Conover, No. 82-2865 litigation in Securities Industry (D.D.C., Oct. 6, 1982).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I.  a Citibank application to In October 1982, the Comptroller approved in a common trust fund maintained offer individual retirement accounts invested now being challenged in Investment and managed by the bank. This decision is .C., Feb. 24, 1982) on the basis Company Insitute v. Conover, No. 83-0549 (D.D the Glass-Steagall Act's prohibition that the proposed Citibank activity violates ribution of securities. on bank securities underwriting and dist oved an application In January 1983, the Federal Reserve Board appr les Schwab & Co., a discount of BankAmerica Corporation to acquire Char would violate Glass-Steagall. brokerage firm, and rejected the argument it violate the BHCA. The Board also found the acquisition did not in a letter of April 11, In both views, it has been joined by the SEC, a letter of April 8, 1983, relating 1983, and by the Department of Justice, in on to expand the Schwab decision to to the Federal Reserve's proposed regulati . full status as a regulation under the BHCA on is pending in the Schwab To the subcommittee's knowledge, no litigati situation at the time of this invitation. cial and regulatory circumstances Whereas the sheer complexity of these judi l clarity and fairness, two situations raise inherent problems related to lega nonbank banks, the Bank Holding directly intertwine the matters of banks, Company Act, and the Glass-Steagall Act. a regulation that would allow First, on May 9, 1983, the FDIC proposed affiliates engaged in the entire stat nonmember FDIC insured banks to own r words, it proposed virtually to line of securities transactions. In othe s. It did this on the grounds that terminate Glass-Steagall for those bank ll Act apply only to banks which Sections 16, 2C, and 32 of the Glass-Steaga are members of the Federal Reserve. affiliates of state nonmember banks, Further, according to the Corporation, es engage in the taking of deposits which distinct entities do not themselv not covered by Section 21 of the but only in the securities business, are s, as distinct corporate entities Glass-Steagall Act and the state nonmember bank business, just their affiliates themselves, are not engaged in the securities are. ercial banks. The FDIC is already This proposed regulation relates to comm situations. For instance, the Boston ted rela ely clos on on gati liti in lved invo sed to a commercial, bank--which is, Five Cents Savings Bank, a savings as oppo that savings bank is insured by the nevertheless under FDIC jurisdiction since to engage in securities activities Corporation--has announced its intention ll The FDIC has refused to object on Glass-Steaga vis a vis subsidiaries. any Institute v. FDIC No. 82-1721 grounds. This has led to Investment Comp been no decision, to the knowledge (D.C. Cir. Feb. 3, 1983) in which there has the invitation to this hearing. of the subcommittee, as of the date of position of the FDIC will depend To a some degree, the importance of this activities to state nonmember banks and e thes wing allo ion slat legi e stat on es have statutes limiting their their affiliates. Apparently, most stat by state law. However, some banks so as to prevent these affiliations   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8. states have "leeway" laws, which allow state banks to invest varying percentages in any of their deposits or capital in the shares of a corporation engaged activity. These might allow the FDIC proposal to take practical effect e, Mass. regardless of the absence of specific legislation. See, for exampl Ann. Laws Ch. 167 F, Section 3(4). Second, the Comptroller and the FDIC have permitted Dreyfus Corporation One of the both to charter and to acquire banks, as noted in Part I. by objections of the Federal Reserve to the chartering of the national bank ll. the Comptroller was that it would constitute a violation of Glass-Steaga new national bank In this case, the Comptroller, in essence, said that the and that its was a nonbank bank for purposes of the Bank Holding Company Act ll because chartering and affiliation with Dreyfus did not violate Glass-Steaga ment banking Dreyfus was neither principally nor primarily involved in the invest case of the acquisition business, despite some distribution of securities. In the ially the same thing of New Jersey State Bank by Dreyfus, the FDIC found essent were that New Jersey as did the Comptroller, except its grounds, of course, entity, was only State Bank, a state nonmember bank, a distinct corporate Section 21. affiliated with Dreyfus and would not, therefore, violate B.  Questions  pments (1) Is the above background an accurate summary of develo Steagall Act respecting banks, nonbank banks, the BHCA, and the Glassnature would you on the date of the hearing? What points of a legal add or correct? ant Attorney (2) Was the 1981 letter from Robert McConnell, Assist (reprinted General for Legislative Affairs, to Chairman Jake Garn Committee on in the Financial System Hearings Before the Senate Sess. 141 (1981), Banking, Housing, and Urban Affairs, 97th Cong., 1st firms, though often which stated money market mutual funds of securities deposits for Section subject to near demand withdrawal in practice, were not t in its understanding 21 purposes, legally sound? Is the subcommittee correc courts? that this opinion has never been challenged in the tory scheme (3) Does the basic thrust of the "separating" regula of the in Glass-Steagall continue to make cogent law in light McConnell letter? Investment Company (4) What is the current status in the courts of of the cases, how likely Institute v. FDIC, cited above? Considering the trend Section 21? Please explain is the FDIC to prevail in its interpretation of your reasons. alter statutes if the (5) Although believing that states will have to widespread practical effect, FDIC's interpretation of Section 21 is to have "leeway" statutes, such as that what, nevertheless, is the potential of using limited degree, the FDIC's cited above from Massachusetts, to effect, to a policies? is A. G. Becker to prevail (6) Considering the trend of cases, how likely Please explain your reasons. in its case regarding banking and commercial paper?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  9. 1933, with (7) Why is Glass-Steagall, which has been in effect since subjected to a rising tide of only one major amendment in 1935, suddenly being atory agencies, such litigation and differences of interpretation among regul Department of Justice from as that now splitting the FDIC, Comptroller, and the Federal Reserve as to the meaning of Section 21? d the Congress (8) If the statute is subject to such controversy, shoul rce and banking" or should "tighten" it to make clearer the "separation of comme fications would you suggest that separation be relaxed? If the latter, what quali be placed on that relaxation?  III.  ng Company Banks, Their Insurance Activities, and the Bank Holdi Act A.  Background  ng companies can be The insurance activities in which banks and bank holdi however, after the enactment engaged have a long and involved history. Basically, 97-320 at Section 601, these of Title VI of the Garn-St Germain Act, P.L. amended the BHCA at its activities were severely restricted. This statute a principal, broker, Section 4 so as to mean that providing insurance as to banking and, therefore, or agent, is not an activity that is closely related company, with seven limited not a permissible activity for a bank holding their holding companies, exemptions. Since banks, themselves, as opposed to the National Bank Act at 12 also have limited insurance powers under either ctive states, commercial bankU.S.C. 92 or under the laws of most of the respe from insurance. The exceping organizations have been thought to be precluded t life, disability, or involuntary tions are for such situations as dealing in credi generally in areas where unemployment insurance, as dealing in insurance community rule of the National populations are small, say, under the 5000-person ng company which might Bank Act's 12 U.S.C. 92, or as where the holdi be involved is quite small. Act covers However, Section 3(c) r.,f the Bank Holding Company holding company the basic criteria for the establishment of a bank ownership of and for the expansion of a bank holding company's the Board may not approve banks. These criteria are, fundamentally, that restrain trade and that it may acquisitons that would result iu a monopoly or the holding company in consider the financial and managerial resources of passing on formation or expansion. to deny applicaThese standards apparently do not allow the board the grounds that, at state law, tions for formation or expansion/acquisition on would not be allowed under the bank can engage directly in activities which currently rare state Section 4 of the BHCA. In other words, if, under not permitted under laws, a bank could engage in insurance to degrees Germain Act, the Board Section 4, as amended by Title VI of the Cam -St cation to buy the state could not refuse a bank holding company's appli make the holding company bank on the grounds of Section 4 avoidance or of approval. This divest these insurance activities as a condition Service, Inc., 59 Fed. seemingly was the rational in Piedmont Financial ont case, the Board Res. Bull. 766 (1973). Further, under the Piedm bank to engage in allowed a wholly owned subsidiary of such a state   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NI\  10. the range of insurance that would also be permitted to the bank itself. The subsidiary arrangement in Piedmont is arguably, however, discretionary with the Board since not only is it subject to Section 3 of the BHCA, but it is also subject to Section 4 where the Board's discretion is wider. Indeed, the Federal Reserve seems to be considering overturning the "subsidiary" portions of Piedmont in order to control a situation which is evolving in South Dakota. There, new state law permits state banks and their subsidiaries to engage in all facets of the insurance business and opens such banks to acquistion by out-of-state holding companies. (Both Citicorp and First Interstate Bancorp are interested in pursuing the possibilities inherent in this situation.)8 The question of the use of Sections 3 and 4 of the BHCA to avoid Title VI of Garn-St Germain also has arisen in petitions filed on May 27, 1983, by the Independent Insurance Agents of America before the Federal Reserve to quash the insurance activities of Hawkeye Bancorp in Iowa and Marshall and Ilsley Corp. in Wisconsin, in both of which jurisdictions insurance activities are permitted for state banks to a greater degree than seems permissible under the Garn-St Germain Act. B.  Questions  (1) Is the above an accurate summary of developments regarding banks, their insurance activities, and the Bank Holding Company Act? (2) Could the Board halt the insurance activities of subsidiaries of state banks--which banks are, in turn, the subsidiaries of, say, an out-of-state ed to engage bank holding company--under Section 4 if the banks would be permitt directly in those insurance activities by state law? (3) Could the Board halt the direct insurance activities of state banks themselves where: no insurance subsidiaries are involved; state law clearly of a bank allows the activity for the bank; and the application to become part holding company only involves Section 3 of the BHCA? Could Section 5 of the orders BHCA, granting the Board authority to "issue such regulations and this Act necessary to enable it to administer and carry out the purposes of and prevent evasion thereof" be used to this purpose? (4) Assuming a state bank that divests itself of its "commercial loans," , from the however defined, asserts nonbank bank status, claims escape, thereby of insurance entire BHCA, and is in a jurisdiction permitting a high degree n be in activities for state banks, what would be the Board's legal positio aries if halting the insurance activities of the nonbank bank or its subsidi could potentially the nonbank bank is owned by a company which in no other way be considered a bank holding company? IV.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  under the Banks and Nonbank Banks with Respect to Interstate Operations Douglas Amendment to the Bank Holding Company Act A. Background tion of the On February 4, 1983, the Comptroller approved the applica  11. Citizens Fidelity Corporation, a Kentucky bank holding company, to charter a limited purpose national bank in Ohio. The main purpose of the new national bank is to conduct the credit card operations for the parent bank holding company to take advantage of Ohio's higher usury structure. However, since Ohio does not specifically permit an out-of-state bank holding company to acquire a bank in Ohio, the chartering of such a bank would be prohibited by the Douglas Amendment to the BHCA, 12 U.S.C. 1842(d). This clause allows such interstate bank holding company (bhc) operations only if a state specifically permits an out-of-state bhc to operate a bank in its borders. To avoid this restriction, the new bank will not accept demand deposits or make commercial loans. This would seemingly take it out of the definition of a "bank" for BHCA purposes and avoid the Douglas Amendment. However, since Citizens Fidelity is already a bank holding company, the approval of the Federal Reserve Board is necessary even if the new entity is not considered a bank. On the other hand, Dimension Financial Corporation, which is not now a bank holding company, has submitted applications to the Comptroller to establish 31 national banks in 25 states. These banks, according to their applications, will not engage in the making of "commercial loans," however defined. As with the Kentucky/Ohio situation, the theory here is that these would be nonbank banks and, consequently, not subject to the Douglas Amendment. B.  Questions  (1) Is the above background an accurate summary of developments respecting banks and nonbank banks under the Douglas Amendment to the BHCA? What points of a legal nature would you add or correct? (2) In what manner could the Federal Reserve halt Dimension if the Comptroller elects to charter the national banks involved? how (3) If the Federal Reserve Board cannot or will not halt Dimension, seriously is the Douglas Amendment impaired? For example, could a company have banks in some states which took no demand deposits but made commercial loans in or from those states while also having banks in other states which took demand deposits in these other states but made no commercial loans in or from these other states? In other words, could there be a "banking company" which arranged its affairs so that it had "commercial lending" nonbank banks in some states and "demand deposit taYing" nonbank banks in other states? V.  Thrift Institutions and Commercial Banks, in General A. Background--Eycluding Bank and Thrift Holding Company Matters  Basically, there are two types of thrift institutions--savings and loan associations and mutual savings banks. The first has, traditionally, existed to promote savings and make mortgages. The second, while also concentrating on mortgages and savings, has customarily had more diversified powers, especially in the making of personal loans. It would be impossible, here, to summarize the innumerable nuances which have characterized differences in these two kinds of firms since some have been Chartered under widely varying Consequentstate laws while others have been chartered under federal statute.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  12. mid-1970's. ly, this background only takes in their evolution since the of institutions These high points outline a decisive trend toward both sorts , as becoming nearly the same, in liability/asset/corporate form terms developments banks. The outline also, for the sake of brevity, emphasizes are federally with respect to savings and loans and mutual savings banks which chartered, as opposed to those which are state chartered. 1. Savings and Loan Associations and Savings Banks and loan associations Until the mid-1970s, all federally chartered savings ns. However in 1973, were required by law to be organized as mutual associatio given the authority to approve the Federal Home Loan Bank Board (FHLBB) was al stock associations, the conversion of federal mutual associations to Feder iction. The law, however, first on a limited basis, and after 1976 without restr associations and placed still prevented de novo federal stock savings and loan ered stock associations-certain restrictions on the conversion of state chart s--to federal stock status. equity based firms which were permitted in some state provisions of the Cam This situation has been completely revised under the charter federal savings St Germain Act. Under this act, the FHLBB is free to izations, whether de novo or and loans (fs&ls) as either stock or mutual organ loans (ss&ls). Moreover, through the conversion of eligible state savings and rt to federal status) may all federal associations (or those seeking to conve association (stock or mutual) elect to be chartered either as a savings and loan l). The FHLBB was also given the or as a federal savings banks (stock or mutua authority to charter federal savings banks de novo. gs banks are given Both federal savings and loans and federal savin Institutions and Monetary Control essentially equivalent powers. The Depository federal savings and loan associations. Act of 1980 greatly expanded the powers of of credit cards, trusts, It allowed them to, inter alia: offer NOW accounts, allowed them to, inter alia: and a wide variety of consumer loans. It also rate debt instruments, invest in commercial paper, certain kinds of corpo The Garn-St Germain Act granted and loans secured by commercial real estate. then added to the powers of these same powers to federal savings banks, and it gs banks a long list of functions both federal savings and loans and federal savin those of commercial banks. which brought their powers virtually to a par with federal savings and loans and Some percentage restrictions remain on how much ities or accept certain federal savings banks can invest in certain activ evermore limited, practical liabilities. These, limitations, however, seem of depositories.9 effect in distinguishing the three kinds of (2)  Savings Banks--Special Features  federal savings and loans, Federal savings banks are essentially like savings bank which was previously under current law, as noted. However, a federal to engage in activities formerly a state chartered savings bank may continue activities are broader than those allowed it under state law, even if those which mostly relates to the ownership now permitted under federal law, a matter of common stock.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  13. Loan Bank Federal savings banks must become members of the Federal Home ance Corporation, System and must be insured by the Federal Savings and Loan Insur banks which were with one exception. This exception is for Federal savings the FDIC. These formerly state chartered mutual savings banks z insured by institutions may retain their FDIC insurance.1° It should be noted that the entire savings bank legal apparatus types of provides a set of very complex possibilities. There can be these the FHLBB, and savings banks: (1) Federal stock savings banks, Chartered by ered by the FHLBB, insured by the FSLIC; (2) Federal stock savings banks, chart , chartered by the but insured by the FDIC; (3) Federal mutual savings banks gs banks chartered by FHLBB, and insured by the FSLIC; (4) Federal mutual savin gs banks, chartered the FHLBB, but insured by the FDIC; (5) state stock savin FDIC; (6) and state by their respective state governments, and insured by the nments, and insured by mutual savings banks, chartered by their respective gover the FDIC. tical problems This complex arrangement induces some very difficult analy of savings banks since the Cam -St Germain Act exempts some of these kinds the Savings and Loan from the Bank Holding Company Act and places them under savings banks in an Holding Company Act (SLHCA) while leaving other kinds of SLHCA. See Question 6 ambiguous position with respect to both the BHCA and the below. institutions have Finally, it is important to realize all these kinds of their source of charter, virtually unfettered ability to change back and forth on authority. federal insuring agency, and consequently, regulatory B. Questions important (1) Is the above an accurate summary regarding recent, What features of an developments related to thrifts and banks in general? important legal nature would you add or correct? y allowed thrifts (2) Some have said that the Garn-St Germain Act reall ut discussing the adjunct to surpass commercial banks in terms of powers. Witho ts which are different questions of holding company and service company forma with that assertion? for thrifts and for commercial banks, would you agree Please explain.11 VI.  Company Act, Thrift Institutions, the Savings and Loan Holding Commercial Banks, and the BHCA A. Background  te subsidiaries, Under the BHCA, a bank holding company can now opera an industrial bank; act as besides banks themselves, that: make loans; operate provide limited data investment advisers; provide certain leasing services; rs in the limited fashions processing services; act as insurance agents or broke in real estate appraisal; noted in Part III of these interrogatories; engage what the banks could do and, in most respects, do through subsidiaries 2 themselves, with the exception of taking deposits.1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  14. l Companies that control federally insured savings and loans or federa , are subject savings banks, whether they are insured by the FDIC or the FSLIC a company to the Federal Savings and Loan Holding Company Act. Under this Act, engage in that owns only one savings and loan or one federal savings bank may s and loan or any other business activity, without restrictions, if the saving (See below on savings bank qualifies for s&l tax status under 7701 (A19), IRC. IRC.) Under these, Sears Roebuck operates a retailing business, a securities firm, and a savings and loan association.13 loan In the case of a company that owns more than one savings and in a wide range association, the company, i.e. the holding company, can engage operations of of activities as long as they are "a proper incident to the savings account insured institutions and not detrimental to the interests of The FHLBB, which has interpretive authority over this holders there in. activities for standard in the SLHCA has allowed a much broader range of than the Federal multiple savings and loan holding companies under this clause Section 4 of the Reserve Board has permitted for bank holding companies under BHCA.1$ at 12 U.S.C. It should again be noted that under the Cam—St Germain Act which covers nearly all 1841(c), no institution which is insured by the FSLIC, , which consequently savings and loan associations, or chartered by the FHLBB covers federal savings banks, is subject to the BHCA.15 s bank subsidiaries Additionally, federal savings and loans and federal saving the office branching of savings and loan holding companies are subject to covering federally rules of the FHLBB which are much more liberal than those the McFadden Act.16 (nationally) chartered commercial banks which are bound by and federal Finally, many of the advantages federal savings and loans Loan Holding Company savings banks enjoy under the structure of the Savings and Section 7701 (A 19) of Act are conditioned on them meeting the requirements of composition test which the Internal Revenue Code. This sets forth an asset g company to invest would seem to require the thrift institutions in the holdin well as of tax heavily in mortgages to keep advantages of structure, as reduction.17 B. Questions regarding thrift (1) Is the above an accurate summary of developments commercial banks, and Institutions, the Savings and Loan Holding Company Act, add or correct? That features of an important legal nature would you the BHCA? the powers of federal (2) Would you agree with the conclusion that, when banks, including their savings and loan associations and federal savings under the Federal Savings and branching capacity, are added to the authorities outdistance, if full legal Loan Holding Act, the resulting conglomerate could the Bank Holding Company potentials were deployed, a conglomerate formed under Act, in terms of diversified services. of Section 7701 (A19) of (3) In what ways can the asset composition test thrift organizations and the Revenue Code be interpreted so as to allow the Savings and Loan Holding their affiliates the structural advantages of diversification of activities, Company Act and other statutes allowing for   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  15. t visions of the Cam -St Germain Act, withou such as the emergency takeover pro Could the thrift institutions calculate maintaining a commitment to housing? at the end of the year? Could they for the asset composition test only y m off to a commercial lending subsidiar originate commercial loans and sell the pany apparatus? inside the overall thrift holding com s antages to being a federal stock saving (5) Assuming there are decided adv ociation and falling under the Savings ass n loa and s ing sav ck sto l era fed or bank from the BHCA, what legal detriments mpt exe ng bei le whi y pan Com g din Hol and Loan g from a state or national commercial tin ver con in ed olv inv are ies ult fic and dif side of those which might be connected bank to these stock thrift forms, out ernal Revenue Code? to the above cited portion of the Int ch are not insured by the FSLIC or (6) With respect to savings banks whi are they subject to the BHCA? chartered by the FHLBB, to what extent VII.  Corporations, Commercial Banks and Thrift Institutions, Thrift Service the Bank Service Corporation Act A. Background  Loan Act, 12 U.S.C. 1464 (c)(4)(B), Section 5(c)(4)(B) of the Home Owners l savings and loan associations and era fed g nin mea s, ift thr l era fed s permit ck, of their assets in the capital sto 3% to up est inv to ks, ban s ing federal sav e corporations. By regulation, the vic ser of s tie uri sec er oth and ns, obligatio its of these corporations and has lim e vic ser the set to er pow the FHLBB has hing to prevent a number of federal not is re the er, eov Mor y. adl bro done so very 8 m a service corporation of any size.1 thrifts from joining together to for ons to do such things as develop and The FHLBB now permits these corporati tax returns. ms of insurance, and even prepare manage real estate, broker most for the activities by regulation to include Indeed, its expansion of the list of ing of ring of mutual funds,and the broker nso spo the es, hom ile mob of re ctu manufa ge in the conference report on the gua lan by d ppe sto y onl was ate est real of statutory prohibition on the list no s ain rem re The . Act n mai Ger Cam -St could undertake. activities such service corporations e -St Germain Act to the Bank Servic Cam the by s ent ndm ame st, tra con In ow bank service corporations, with all , 867 1-1 186 .C. U.S 12 at Act Corporation engage in only those activities, to e, erv Res l era Fed the of al rov the prior app permissible for bank holding companies other than deposit taking, that are under the BHCA. B. Questions y of developments regarding thrift (1) Is the above an accurate summar Bank ations, commercial banks, and the por cor e vic ser ift thr , ons uti tit ins you of an important legal nature would es tur fea t Wha ? Act on ati por Cor Service add or correct? halted mittee report on Garn-St Germain (2) Although the conference com ation activities by regulation, is expansion of thrift service corpor corporations e by case basis, these service it your opinion that, on a cas   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  16. a could expand their lines of activity by application, without benefit of specific, permissive, general regulation? (3) What is your opinion of the view that a thrift service corporation in which is offering brokerage services, as with the case of "Invest,- is violation of the Glass-Steagall Act's Section 21? Do you have any further v. Federal views on the assertions being made in Securities Industry Association Home Loan Bank Board, No. 82-1920 (D.D.C., July 12, 1982) in which this Section 21 issue is also at stake? (4) Do you have any suggestions for correcting the anomalous competitive situations between bank service corporations and savings and loan service corporations? VIII.  Miscellaneous Questions  (1) Are the general antitrust laws adequate to prevent antibly, highly competitive developments in the context of a changing and, presuma changes in the concentratable financial services industry? Would you sugesst Loan Holding Bank Holding Company Act, the Bank Merger Act, the Savings and Act, or the Depository Company Act, the McFadden Act, the Sherman Act, the Clayton Institutions Management Interlocks Act? (2) Are at 12 U.S.C. at 12 U.S.C. practices of  anti-tying provisions of the Bank Holding Company Act 1971-78 and of the Garn-St Germain Act, now codified 1464(q), adequate to protect the consumer from predatory conditioning credit on the purchasing of other services?  appreciation The staff of the subcommittee wishes to express its special y, and Raymond Natter to Peter J. Wallison, General Counsel of the Treasur publications on of the Congressional Research Service for their recent the subcommittee many of the above subjects and from whose work the staff of scholarly attrihas all too frequently borrowed, without the appropriate, bution, in the preparation of these interrogatories.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  ..••••.. • Of GOVtR••• ..*• 'O  BOARD OF GOVERNORS OF THE  •c •  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20 551  July 15, 1983  The Honorable Ronnie G. Flippo House of Representatives 20515 Washington, D. C. Dear Mr. Flippo: Thank you for your letter of July 11 requesting comment on correspondence you received from Ms. Nancy B. Greist regarding the Federal Reserve System. The Federal Reserve System--the nation's central bank--was established by an Act of Congress in 1913. It is made up of twelve regional Federal Reserve Banks which are supervised by the Board of Governors in Washington. The Reserve Banks are corporate instrumentalities of the United States, and were established by Congress for public purposes. The Board is an agency of the Federal Government, and its seven members are appointed by the President with the advice and consent of the Senate. As Ms. Greist requested, I am pleased to enclose biographical sketches of the present members of the Board of Governors. The salaries of Board members are established by statute. Chairman Volcker receives $69,800 per annum and the other six members of the Board receive $68,400 per annum. The Congress has ultimate authority over the Federal Reserve and oversees the activities of the System through relevant committees. The general goals of the Federal Reserve have been set forth in the Full Employment and Balanced Growth Act of 1978, in which Congress laid out for the Federal Reserve, as well as for the President, the directives of promoting full employment, balanced growth of real income, adequate productivity growth, and reasonable price stability. Moreover, the Board is required by law to make an annual report to the Congress and members of the Board, especially the Chairman, are called upon frequently to testify before Congressional committees.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Federal Reserve is not operated for a profit and returns substantial sums to the U.S. Treasury each year. The earnings of the Federal Reserve System are derived chiefly from interest on U.S. Government securities held in the System's Open Market Account, which are acquired as a part of the System's monetary policy actions. The System returns all earnings in excess of expenses to the U.S. Treasury; in calendar year 1982 payments to the Treasury by the Federal Reserve amounted to more than $15 billion.  •  The Honorable Ronnie G. Flippo Page Two  As provided for by law, the stock of the Federal Reserve Banks is held entirely by the more than 5,00 0 commercial banks that are members of the Federal Rese rve System. In addition to state-chartered member bank s, which have voluntarily joined the Federal Reserve System, all national banks, which are chartered by the Comptrol ler of the Currency, an official of the Department of the Treasury , are required by law to be members of the System. These banks holci the stock of the Federal Reserve Banks. However, owne rship of that stock is in the nature of an obligation incident to membership and does not carry with it the attributes of control and financial interest ordinarily attached to stock owne rship in corporations that are operated for the purpose of making a profit. As provided in the Federal Reserve Act (Section each commercial bank that is a member of the Federal Rese 5), rve System is required to subscribe to the stock of its Fede ral Reserve Bank in an amount equal to 6 percent of the paid -up capital stock and surplus of the member bank. Of the 6 percent subscription required, half (or 3 percent) is paid in, and half is subject to call. The stock may not be sold or pledged as security for loans, and dividends are limited by law to 6 percent per annum. The Federal Reserve Act also provi-!as that any surplus resulting from the liquidation of a Federal Reserve Bank shall be paid to the United States Government, and not the stockholding member banks. As further background on the System, I am enclosing five pamphlets on the structure of the Federal Reserve System, which may be of interest to Ms. Greist. I hope this information is helpful. know if I can be of further assistance.  Please let me  Sincerely, (Signed) Donald I. Donald J. Winn Assistant to the Board Enclosures CO:vcd (V-131) bcc: Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  40 CANNON BUILDING WASHINGTON. D.C. 20515  RONNIE$3. FLIPPO sn,DISTRICT, ALABAMA Ct -1AS: COLBERT, JACKSON. LAUDERDALE. LAWRENCE. 1JMESTONE. MADISON. MORGAN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COMMITTEE: WAYS AND MEANS  Congress of the United gitates t°use of Rtpustntatites i2Oashi1gton, D.c. 2o515 July 11, 1983  e --ri -n  co C.4.2  ir= ri  co  rrl =,  Co  CZ r-  r-  C7  -I C—",  ......  in  -Iri "r1  rn —  4:-  --r—i  ,.--D  Mr. Paul A. Volcker Chairman, Board of Governors Federal Reserve System Constitution Avenue and 21st Street Washington, D.C. 20551  rn  :17: rY1  r-., _co c= 2.< ›.  4. , 77 7,-  Dear Mr. Volcker:  ...B.  N-1 NJ CID  r.6•3 rn "--4 C,  ,. -,- - FA rn  .. 4  Attached is a letter which I received from Ms. Nancy B. Greist of Huntsville, Alabama, asking several questions about the Federal Reserve System. I would greatly appreciate your providing me with any available information so that I may respond to her inquiry. Thank you very much for your time and consideration in this regard. Sincerely,  Zierried Ronnie G. Flippo  F:dg Enclosure  r---.1 7.-  co"  •  v  •  June 23, 1983  /C )-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r.  6 ,017 C.,  )7c.  Ci'(-6 (.1  S  /Ce  .  Good Morning Mr. As we approach another fourth of July holiday that celebrates the independence of this great nation, I find myself, along with a large group of my friends, ignorant of some facts regarding the Federal Reserve System. The group has asked me to write and ask if you will kindly take a moment of your time to enlighten us. 1. What is the Federal Reserve System? 2. Who are the individuals (by name) that make-up this system? 3. How are these individuals appointed to their positions? 4. How much are they paid? 5. Are they in any way regulated by the President, the Congress and/or by the U.S. voters? 6. What part of the U.S. Constitution compels the U.S. citizenry to abide by the policies issued by this system? We wait, most assuredly, with interest for your response, as we are all getting "curiouser and curiouser". Sincerely, i" Nancy B. Grelst and friends   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 15, 1983  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: Thank you for your letter, of June 13 asking that we keep you and the members of your Subcommittee informed regarding the Board's deliberations on the Community Reinvestment Act ("CRA")-related recommendations made by the Center for Community Change. Because we had not received a copy of the Center for Community Change's report referred to in your letter, we contacted a staff member of that organization, who informed us that the document they sent you is not a separate report prepared by the Center, but simply the preliminary report of the Consumer Advisory Council. As you may know, I had asked our Consumer Advisory Council to review and evaluate the Board's implementation of the CRA. The Council has completed its field work and presented its preliminary report at its March 1983 meeting. The draft report will be discussed again at the upcoming July 21 meeting. I will be happy to share the Council's report with you, as well as information on actions the System takes in response to the report. Sincerely,  JCK:JWL:AFC:vcd (V-103) bcc: Mr. Kluckman Mr. Lowell Mrs. Mallardi (2) A.,/  •  •  GOV;.•  BOARD OF GOVERNORS  /-17 " 4.3:1234A: . 014/1-.Si ....•  OF THE  FEDERAL RESERVE SYSTEM LAJ  • •0 : al/S'ci *.fiteCO. • • •.• • •  WASHINGTON, D. C. 20551  July 15, 1983  The Honorable David O'B. Martin House of Representatives Washington, D. C. 20515 Dear Mr. Martin: Thank you for your recent correspondence requesting comment on the enclosed correspondence from Mr. Joseph W. Dufort, Director of the Franklin County Veterans Service Agency in Malone, New York. Mr. Dufort wrote that he had been contacted by Mr. William Mitchell concerning Mr. Mitchell's inability to obtain financing to build a home on land located on the St. Regis Mohawk Reservation. Mr. Dufort states that the reason given by several lending institutions in his area for the credit denial is that they cannot foreclose or repossess land which is situated on the reservation. Although Mr. Dufort believes that this may be a legate concern for lenders to consider, he indicates his belief that such a practice is discriminatory and asks what financing options are available to persons such as Mr. Mitchell. The Equal Credit Opportunity Act and its implementing Regulation B prohibit discrimination in lending on the basis of race, color, age, sex, marital status, religion, national origin, because a person is a recipient of public funds, or because a person exercises his or her rights under the Consumer Credit Protection Act. Lenders, however, have a great deal of flexibility in establishing criteria for the types of loans they will make and the creditworthiness of the persons to whom they will lend. Their standards may include such things as level of income, the value of assets owned, the amount of debts owned, the length of residency, and so on. It is permissible for lenders to set these standards as long as they do not discriminate against a protected class. Clearly, the relationship between the dictates of the Equal Credit Opportunity Act and creditors' needs for secure collateral is not always an easy thing to sort out in the context of American Indians who live on reservations and also need credit. In general, the Act and Regulation B prohibit a creditor from having a general lending policy which refuses to grant credit to any American Indian or to any person who lives on an American Indian Reservation. Furthermore, creditors may not have a general lending policy which refuses to grant credit to any person simply because the security offered is property located on an American Indian Reservation. Creditors, however, may refuse to grant credit if the refusal is based on nonracial considerations such as the availabty of legal rights, remedies or procedures in the event of default by the borrower, the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable David 0'11. 11artin Page Two  marketability of loans in the secondary market, and the qualifications or criteria for participation in governmentallyinsured or guaranteed programs. As we understand it, property on American Indian Reservations is often beyond the reach of the jurisdiction of this country's normal court processes. Apparently, however, some tribal councils offer redress in tribal courts to outside creditors. At least one federal district court has approved an agreement between the U.S. Justice Department and a creditor, which outlines the principle that the creditor must take some steps to investigate the availability and reliability of tribal court processes before it decides whether or not to grant credit to American Indians. In order to facilitate private credit granting to American Indians in his area in the future, Mr. Dufort might wish to approach the local lending institutions and tribes with the aim of seeing whether such a principle would work. Furthermore, staff at the Bureau of Indian Affairs of the Department of the Interior suggested that Mr. Dufort and Mr. Mitchell contact the Bureau of Indian Affairs Office in Syracuse, New York. The address of this office is noted below. Apparently, Mr. Mitchell's problem is not unique arrl federal programs exist to deal with such situations. I hope this information is helpful. know if I may be of further assistance.  Please let me  Sincerely, (Signed) DenaN 1. Vi'r,1 Donald J. Winn Assistant to the Board Enclosure SP:WRM:vcd (#V-100)  bcc:  Ms. Potkai, Mrs. Mallardil/  Bureau of Indian Affairs Office Federal Building 100 South Clinton Street Syracuse, New York 13202 Phone: (315) 423-5476   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  !•M111111p,  Action assigned Mr. Garwood •  DAVID O'B MARTIN 26TH DisTnigT, NEW YORK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COMMITTEE ON ARMED SERVICES  Congre55 of tie tiniteb  2.-zo  tate5  3Dou5e of 1epre5entatibeci Elliusbington, 20515  tor' --.1 rn CO CD :DO C=°  June 8, 1983 rn  .  C/3 rr, " 4 CD = Ern rn dallim•••  Paul A. Volcker, Chairman Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551  •••••• • •  '"-4  NJ  Dear Mr. Volcker: Enclosed you will find a copy of the correspondence I have received from Mr. Joseph W. Dufort, the Director of the Franklin County Veterans Service Agency in Malone, New York. As you will note, he is concerned over the fact that an American Indian, who is entitled to a Veterans Administration Home Loan Guarantee, has been unsuccessful in his attempts to locate a private lending institution which is willing to approve a mortgage application since the property he wishes to purchase is on the St. Regis Mohawk Indian Reservation. I would appreciate your reviewing this matter and furnishing me with a detailed response upon which I may base a reply to my constituent. espectfully yours,  David O'B. Martin Member of Congress DM/jh Enclosure (1)  C.01 i . ";*5  rrl  FRANKLIN COUNTY VETERANS SERVICE AGENCY NEW YORK STATE DIVISION OF VETERANS AFFAIRS Phone 518-483-6767 Ext. 393 or 394  89 West main Street  Malone, New York  3 June, 1983  REr,FIVPD Congressman David O'B. Martin Room 502 Cannon House Office Building Washington, D.C. 20515  JUN 7i9331  Dear Congressman Martin, which I have Once again I am seeking your assistance in a Veteran -related problem recently become cognizant of. to the I was contacted by a Native American, Mr. William, Mitchell, in regards Discharged, Veterans Administration Home Loan Guarantee Program. This Honorably Country Viet Nam Veteran has tried to obtain financing through various North both employed lending institutions and has been unsuccessful. He and his wife are been refused and their ability to repay a loan has not been questioned. They have wish to loans at these lending institutions because the porperty on which they the build is located on the St. Regis Mohawk Reservation. The reasoning behind ss land credit denial is that the lending institution cannot foreclose or reposse which is situated on the Reserve. , where does This may be a legitimate concern for the lenders to consider, however their homes? this leave these persons who wish to make adequate arrangements for does not There is a Credit Union located on the Reserve but this Credit Union Franklin have the capital to make home loans. My position as Director of the ng those County Veterans Service Agency requires me to assist Veterans in obtaini you realize benefits to which they are legally entitled to. I am quite sure that how frustrating this situation has become for me to deal with.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -1-  12;..  Mr. Mitchell was the first person from the Reserve who made me aware of this problem and I feel it is my duty to seek assistance to alleviate or rectify this problem before I am confronted with it again. Refusing credit for lands or dwellings located on the Reserve appears to be discriminatory. I have morally pledged myself to do everything possible to help these Native Americans. Any Assistance you may lend will be greatly appreciated. If there are any questions you may want to ask or any information I can provide, please contact - me at your convenience. Awaiting your kind reply, I remain,  Respectfully,  (4ose h W. Dufort  tirector JWD:jb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 13, 1983  The Honorable Jake Garn Chairman Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: Thank you for your lette. r of July 13 concerning my testimony on monetary policy pursuant to the Full Employment and Balanced Growth Act of 1978. I look forward to appearkpg before your Committee on July 21 at 9:30 a.m. Sincerely, .  SL Fail;  vcd (V-128) bcc:  Messrs. Axilrod, Kichline, Prell Mrs. Mallardi (2)‘j  Mrs. Mallardi I  JAKE GARN, UTAH, CHAIRMAN  ."OHN TOWER. TEXAS JOHN HEINZ, PENNSYLVANIA ' 'WILLIAM L ARMSTRONG, COLORADO ALFONSE M °AMATO. NEW YORK SLADE GORTON, WASHINGTON PAULA HAWKINS, FLORIDA MACK MATTINGLY, GEORGIA CHIC HECHT, NEVADA PAUL TRIBLE, VIRGINIA  WILLIAM PROXMIRE, WISCONSIN ALAN CRANSTON, CALIFORNIA DONALD W RIEGLE, JR., MICHIGAN PAUL S. SARBANES. MARYLAND CHRISTOPHER r DODD. CONNECTICUT ALAN J DIXON ILLINOIS J4VI SASSER, TENNESSEE FRANK R. LAUTENBERG, NEW JERSEY  M DANNY WALL, STAFF DIRECTOR KENNETH A. McLEAN, MINORITY STAFF DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CC:  Messrs. Axilrod, Kichline, Prell  United e$tats 6$enate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C. 20510  July 13, 1983  The Honorable Paul A. Volcker Chairman Federal Reserve Board 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: The purpose of this letter is to request that you appear before the Senate Committee on Banking, Housing, and Urban Affairs on Thursday, July 21, 1983, to present the Board of Governors' "Midyear Monetary Policy Report to the Congress" pursuant to the requirements of the Full Employment and Balanced Growth Act of 1978. This hearing will also consider the appropriate response to Section 6 of the Conference Re; ort on the First Budget Resolution for Fiscal Year 1984 requesting a Senate resolution on the "coordination" of monetary and fiscal policies and on other issues. In particular, the Committee would be interested in a discussion of how the Federal Reserve formulates monetary policy, the type of economic assumptions and/or goals that are used in the formulation of monetary policy, the way the fiscal policy position of the federal government is incorporated in monetary policy formulation, and how the Federal Reserve's economic assumptions and/or goals might be used by the Congress in the formulation of fiscal policy. This hearing will be held in Room SD-538 of the Dirksen Senate Office Building and will begin at 9:30 a.m. Sincerely,  CI)  Garn J Chairman  JG/lsh  umisommammoimmur0011111111111  July 13, 11,1 93  The Honorable Fortney H. Stark House of Representatives Washington, D. C. 20515 Dear Pete! Thank you for your letter of June 24 giving me the opportunity to comment on the Federal Reserve System study entitled, "Public Policy and Capital Formation". The authors of the staff study argued that the existing capital stock was not efficiently allocated for a number of reasons. Among them were the facts that (1) the implicit income from household capital (the implicit rent on owner-occupied housing and consumer durables) is not taxed while the income arising from business capital is taxed; and (2) business income subject to tax was overstated because inflation reduced the real value of that portion of depreciation allowances that are taken some time after the installation of the plant or equipment which gave rise to them. The increases in investment tax credits and the net acceleration of depreciation allowances resulting from ERTA and TEFRA have substantially reduced the intersectoral bias of the tax code. The improved inflation outlook since Inn also has contributed to lowering the cost of business capital by raising the real value of depreciation deductions from taxes. Consequently, while it must be recognized that the tax code cannot Possibly be structured to be completely neutral between different types of investments, the forces cited in the staff study that tend to bias investment toward household capital seem much reduced. In contrast, however, when the staff study was written the Federal budget on a structural basis was nearly in balance. Unfortunately, federal structural deficits currently arid in prospect are sufficiently large to absorb a substantial portion of private saving. Unless this situation is corrected, domestic capital formation seems likely to fall short of desirable levels. I believe it most important to bring federal receipts and outlays into better alignment, and very much support your efforts in this regard. I hope you find these comments useful. know if I can be of further assistance. SL:JE:CO:vcd (V-114) bcc: Ms. Lepper Mr. Enzler Ms. Wing Mrs. Mallardi (2) ,//   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  sincerely,  Please let me  FOR rNEY H.(PETE) STARK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COMMITTEES:  Action assigned Mr. Kichline  9TH DIS1RICT, CALIFORNIA  WAYS AND MEANS DISTRICT OF COLUMBIA SELECT NARCOTICS  CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES  flj  WASHINGTON, D.C. 20515  June 24, 1983 cn -n rrl t=3 -n rri •••••• rrl rri 71a "  Hon. Paul Volcker Chairman Federal Reserve Board Constitution Avenue & 21st Street, N.W. 20551 Washington, D. C.  C'D ad2 3  3Z.  Dear Mr. Chairman: I recently encountered a quote from your 1981 study, "Public Policy and Capital Formation," which read "While finding that the overall rate of capital formation is probably adequate, this study concludes that the existing capital stock is misallocated, probably seriously, among sectors of the economy and types of capital, primarily because of distortions caused by inflation and U.S. tax laws.... The biases are substantial.... As a result, capital is not applied to its most efficient uses....The cost to the nation has been lessened productivity growth and reduced business output." The Ways and Means Committee has been ordered by the budget process to raise over $10 billion in new revenues for FY 1984--thus we are about to have our third major tax bill in three years. It would be helpful if, prior to the mark-up on this summer's tax bill, you could comment on whether you feel the above 1981 quote is still accurate, and whether the last two tax bills (ERTA & TEFRA) have increased or decreased the investment biases. Thank you for your assistance in  request.  r ey H. (Pete) Stark nited States Congressman FHS:wkv  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  (1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 13, 1983  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: Thank you for your letter of July 11 concerning my testimony on monetary policy pursuant to the Full Employment and Balanced Growth Act of 1978. I look forward to appearing before your Committee on July 20 at 10:00 a.m. Sincerely,.  PJT:vcd (V-125) bcc:  Mr. A>ilrod Mr. Kichline Mr. Prell Mrs. Mallardi (2)1  FERt-AND J ST GERMAIN, R.I., CHAIRMAN HENRY B GONZALEZ, TEX JOSEPH G MiNISH, NJ. FRANK ANNUNZIO. ILL PARREN J. MITCHELL MD WALTER E FAuNTROY. D.C. • 1 N C. STEPHEN L NEA.. JERRY M PATTEBSON, CALIF. CARROLL HUBBARD, JR., KY. JOHN J LAFALCE. N Y. NORMAN E. D'AMOURS. N.H. STAN LuNDINE. NY MARY ROSE °AKAR. OHIO BRUCE F VENTO. MINN. DOUG BARNARD. JR.. GA. ROBERT GARCiA. NY. MIKE LOwRY, WASH. CHARLES E SCHUFAER, N.Y. BARNEY FRANK, MASS. BILL PATMAN, TEX. WILLIAM J COYNE. PA. BUDDY ROEMER. LA. RICHARD H LEHMAN, CALIF. BRUCE A MORRISON, CONN. JIM COOPER. TENN. MARCY KAPTUR. OHIO BEN ERDREICH. ALA. SANDER M LEVIN, MICH. THOMAS R CARPER, DEL ESTEBAN E. TORRES, CALIF.  Copies to Messrs. Axilrod, Kichline & Prell.  U.S. HOUSE OF REPRESENTATIVES AFFAIRS COMMITTEE ON BANKING, FINANCE AND URBAN NINETY-EIGHTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING  CHALMERS P WYLIE. OHIO STEwART 8 McKINNEY CONN. GEORGE HANSEN, IDAHO JIM LEACH, IOWA RON PAUL. TEx ED BETHuNE ARK NORMAN D SHUMWAY. CALIF STAN PARRIS. VA BILL McCOLLUFA FLA. GEORGE C WORTLEY. NY MARGE ROUKEMA, N.J. BILL LOwERY CALIF DOUG BEREUTER. NEBR. DAVID DREIER CALIF JOHN HILER. IND THOMAS J RIDGE. PA STEVE BARTLETT. TEX. 225-4247  WASHINGTON, D.C. 20515  (C)  r-1 rri  July 11, 1983  CZ:1  Chairman Paul Volcker Federal Reserve Board 20th & Constitution Avenue, N.W. Washington, D.C. 20551  2:  Dear Chairman Volcker: to report to Congress Under the Humphrey-Hawkins Act, you are required of this year and on preliminary on the monetary policy plans for the remainder d in person on July 20th, 1982 plans for 1984. Your testimony should be delivere from the Federal Open Market beginning at 10 a.m. 150 copies of the report presented to the Committee no Committee and the Board of Governors should be e with Committee rules. Please later than 10 a.m. on July 19, 1983, in accordanc include 150 copies of this report. s requirements, I believe the kin Haw eyphr Hum mal nor the to tion addi In several important questions on the Committee needs to hear from you about ld be provided with your written future of monetary policy. These answers shou statement. The questions are: ney" with sufficient (1) Can we identify a particular conception of "mo ic performance? Is precision to allow its use as a proxy for econom le relationship there any definable "money" or "credit" with a stab to GNP, inflation and unemployment?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C=F  >4,  in the standard "velocity" (2) There has been an undeniable breakdown phenomenon or does it growth assumptions. Is this a short-term money relationships that reflect a breakdown in money definitions/ s unusable in coming will render the standard monetary equation years? Federal Reserve Board should begin the that eved beli ly wide is It (3) inal and/or real GNP, to set and announce its objectives for nom ee with this sentiment? inflation and unemployment. Do you agr e variables rather Would you prefer to offer "estimates" for thes than "objectives"?  C--73 Ci3  dinated (4) Should U.S. monetary policy be formally or informally coor , and/or with the monetary policies of our major trading partners exchange should the U.S. move toward adoption of a multilateral rate stabilization process? cy Reports. The My final concern is with the format of your Monetary Poli the importance of your organization of these reports unnecessarily detracts from following changes be economic outlook for the future. Therefore, I request the e this July. First, the made in your Report to the House Banking Committe Report, followed by Economic Outlook section should be the first section of your of Money and Credit, and the section detailing your Objectives for the Growth Second, the first page finally should come the section in the period just passed. given the FOMC economic of the first section should consist of only a table last report. assumptions, in the central tendency form you adopted Committee, for the use Since your Report is meant to be a Report to this e to changes suggested by the of this Committee, I am sure that you will agre ysis of your Report. Committee to improve our understanding and anal testimony. I am looking foward to your statement, report and Sincerely,  1• id J. St Germain airman FJStG:dMh   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  July 12, 1983  The Honorable Steny H. Hoyer House of Representatives 20515 Washington, D.C. Dear Steny: Thank you for your recent letter on behalf interest in of Mr. Richard Alper, who has expressed an employment with the Board of Governors.  I have asked our Division. of Personnel to  didacy for contact Mr. Alper directly regarding his can positions with the Board. Let me assure you that hip background of l consideratraining and experience will be given carefu to be filled tion for all appropriate positions which are now or in the near future. on on We appreciate having your, recommendati behalf of Mr. Alper. Sincere.ly,  A   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  KW:CO:pjt (#V-118) bcc: Ms. Warehime Mrs. Mallardi (2)v/  July 12, 1983  The Honorable Steny H. Hoyer House of Representatives 20515 Washington, D.C. Dear Steny: Thank you for your recent letter on behalf st in of Mr. Richard Alper, who has expressed an intere employment with the Board of Governors. I have asked our Division of Personnel to y for contact Mr. Alper directly regarding his candidac positions with the Board. Let me assure you that his background of consideratraining and experience will be given careful be filled tion for all appropriate positions which are to now or in the near future. on We appreciate having your. recommendation behalf of Mr. Alper. Sincere.ly,  t-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  KW:CO:pjt (#V-118) bcc: Ms. Warehime Mrs. Mallardi (2)v/  Action assigned Mr. Shannon  fiTENY H. HOVER 13TH Dis-nticr, M AR YLAND  Congre55 of tbe Eniteb &tato kolust of RepretentatibesS  COMMITTEES:  illaington,;D.C. 20515  POST OFFICE AND CIVIL SERVICE BANKING. FINANCE AND URBAN AFFAIRS  June 27, 1983  1 1  4 1/  Mr. Paul Volcker Federal Reserve Board 20th and C Streets, N.W. Washington, D.C. 20551 Dear Paul,  I am enclosing a copy of a resume of a young attorney, Richard Alper, who is very interested in attaining a position at the Federal Reserve Board. I have known Richard for sometime and he has an outstanding record of achievement. He has done an excellent job in the past in negotiating and litigating for Prince George's County and has proven himself more than capable in handling a variety of legal matters. Richard is a fine young man who I feel would be a definite asset to your agency. I hope you will consider him for any position that may be available. Thanking you for your consideration and with kindest regards, I am Sincerely yours,  STENY Membe  HOYER Congress  enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A3 TAJO 01A133311 L fl :8 UY  I  ml E861  le131SAS 3A1123.:Id 1n13133i 3141 S014113A03 0 CO  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 2  Resume, Richard S. Alper, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July R, 1993 The Honorable Don Sundquist House of Representatives Washington, D. C. 20515 Dear Mr. Sundquist: Thank you for your letter of June 29 regarding the membership application of Central Trust Company, Memphis, Tennessee (Central). Although the Board's staff letter of June 24 to 'Ir. Kenneth Lenoir, President of Central, indicated staff's willingness to present the application to the Board for consideration, it also pointed out concerns that staff believed could be addressed to give Central's application, which is unique in relation to previous anplications in several respects, a better chance of approval. As you have been informed, one of staff's opinions was that the expected expansion of Central's activities should he accompanied with a strong capital position, at least in the amount required by state banking law. A capital position of this nature would also alleviate the inequalities between Central and other statechartered member institutions. Board staff on several occasions have discussed these concerns and opinions with Mr. Lenoir by telephone. Mr. Lenoir has subsequently provided staff with a letter dated July 6, 1183, in which he has delineated a proposal to augment Central's capital position. Staff is currently in the process of reviewing the proposal and has contacted Mr. Lenoir by telephone in our continuing efforts to process Central's application for membership. We hope that this information is responsive to your concerns regarding Central's membership application. Sincerely, • .) 1 Pr^lri 1. Donald J. Winn Assistant to the Board DRV:CO:vcd (V-115) bcc: Don Vinnedge Jack Egertson Bill Taylor Mrs. Mallardi  Action assigned Mr. Ryan; info copy to Mr. Bradfield  DON SUNDQUIST  DISTRICT OFFICES  7.;,H DISTRICT, TENNESSEE  117 SOUTH 2ND STREET CLARKSVILLE, TENNESSEE 37040 815-552-4408  COMMITTEES: PUBLIC WORKS AND TRANSPORTATION VETERANS AFFAIRS  Congress of tht United cStates ilouse of Representattes Vashington, D.e. 20515  WASHINGTON OFFICE: 515 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 202-225-2811   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5909 SHELBY OAKS DRIVE SUITE 112 MEMPHIS. TENNESSEE 38134 901-382-5811  June 28, 1983  The Honorable Paul A. Volcker Federal Reserve System Twentieth Street and Constitution Avenue NW Washington, D. C. 20551 Dear Mr. Chairman: The Central Trust Company of Memphis, Tennessee made application March 21, 1983 in St. Louis, Missouri to become a member of the Federal Reserve. This company has been in successful business for eleven years and handles more trust and retirement funds than all of the Memphis banks combined. It is my understanding that Central Trust has not been refused membership to date, however the capital requirements have been placed so high that membership is unlikely. The company has agreed to a $250,000 capital requirement level, yet the Federal Reserve has set the level at $500,000. It appears that the capital requirement level is arbitrary and unnecessary. It should be noted that the state banking law in Tennessee only requires a $300,000 level. Central Trust would certainly agree to some long term capital program or some retained earnings program, which to me would appear to be a satisfactory solution. As you know, your letter to Central Trust was dated June 24, and their options close ten days after that date. Therefore, an expeditious reply to this letter is necessary to meet that deadline. Thank you for your assistance.  'Erne  . 4111110  Don Sundquist, M. DKS/ky  OS :91 la 6Z 11,nr  cui  3L3SA -01d303.4 TrIl JO STMY03 NiV139  11\  Action assigned Mr. Ryan; info copy to Mr. Bradfield  DON SUNDQUIST 7-4.4msTRICT,TENNEssu COMMITTEES: PUBLIC WORKS AND TRANSPORTATION VETERANS AFFAIRS  Congrtss of thc United eStates tiouse of rittpresentatims Washington,  WASHINGTON OFFICE: 515 CANNON HOUSE OFFICE BUILDING WASHINGTON. DC. 20515  5909 SHELBY OAKS DRIVE SUITE 112 MEMPHIS. TENNESSEE 38134 901-382-5811  D.e. 20515  202-225-2811   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  DISTRICT OFFICES 117 SOUTH 2ND STREET CLARKSVILLE, TENNESSEE 37040 615-552-4406  June 28, 1983  The Honorable Paul A. Volcker Federal Reserve System Twentieth Street and Constitution Avenue NW Washington, D. C. 20551 Dear Mr. Chairman: The Central Trust Company of Memphis, Tennessee made applicatio n March 21, 1983 in St. Louis, Missouri to become a member of the Federal Reserve. This company has been in successful business for eleve n years and handles more trust and retirement funds than all of the Memphis banks combined. It is my understanding that Central Trust has not been refused membership to date, however the capital requirements have been placed so high that membership is unlikely. The company has agreed to a $250,000 capital requirement level, yet the Federal Reser ve has set the level at $500,000. It appears that the capital requiremen t level is arbitrary and unnecessary. It should be noted that the state banking law in Tennessee only requires a $300,000 level. Central Trust would certainly agree to some long term capital program or some retained earnings program, which to me would appea r to be a satisfactory solution. As you know, your letter to Central Trust was dated June 24, and their options close ten days after that date. Therefore, an expeditious reply to this letter is necessary to meet that deadline. Thank you for your assistance. Siacerely, -,&;••••• Don Sundquist, M. C. DKS/ky  I '41 t I'. if Vali 113 :4. - :13  3J1J:3  03AI:1P'  OS :01 NV 6Z IMP ECrd E318AS 3A`d3S7A -iTe13011J TrIl .40 SITM?.A00 20 HVO9   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 6, 1983  The Honorable Bill Gradison House of Representatives 20515 Washington, D.C. Dear Bill: I read your remarks with interest, but I better not try to respond in depth now, given that the general subject is bound to come up in hearings over coming weeks. Certainly, I sympathize with your point, but a lot depends on just what people mean by an "accord." Obviously, I am very wary of suggesting, or agreeing to, approaches that imply more omnipotence than we have. Sincerely,  SZfad PAV:pjt (4V-113) bcc: Mrs. Mallardi (2)  Chairman Volcker added a P.S.:  "Let's have breakfast some day."  Action assigned Mr. Kichline; info copy to Mr. Axilrod  *"""ll Ik716.• "  •  DILL Z.,RADISON  2311 RAYSIJRN HOUSE CWVICE BUILDIMG WASHINGTON, D.C. 20515 TCLErscave (202) 225-3164  2140 DISTR/CT, OHIO MARGARET TOTTEN ADMINISTRATIVE ASSISTANT  3-a/t/t- -  FEDERAL Orricr ButLostoo 550 MAIN STREET CINCINPiATI, OHIO 45202 TILLErmoric:(513) 944-2456  CongrMS of the tiniteb etates oluSt of ikepreOntatibui  190 EAST MAIN Srittrr BATAVIA. OHIO 45103 TELEPHONIC (513) 732-1794  Rietzbington, ICC. 20515  1 481A41 164 iYf4* IPA 1' q/6PiA' * 4aitxf -4{Ai June 24, 1983  Paul Volcker Chairman Federal Reserve 20th and C Streets, NW Washington, D.C. 20551 • Dear Paul: Here's a piece I put together about the need for a more cooperative--less confrontational--relation between the Fed and the Congress. I believe you have a far better chance than the President to encourage the Congress to act now to head off the dire consequences of large outyear deficits. Hope you find this of some help. Sincerely,  Bill Gradison Representative in Congress BG/a  NVIVZVII3 3'1'1 0.14133_721 33IJJ3 :1 Rd  1/3IS  le  Nur4S  C867  34U333,7 3H.1 7VU.10.1.1 SYGNY3/10,9 .91V0,9  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2311 RAYBURN HOUSE OFFICE BUILDING  BELL GRADISON  WASHINGTON, D.C.  2ND DISTRICT, OHIO  20515  TELEPHONE:(202) 225-3164 MARGARET TOTTEN ADMINISTRATIVE ASSISTANT  Congt55 of tbe Eniteb etate5 jDoluSe of iktpretentatibui  FEDERAL OFFICE BUILDING 550 MAIN STREET 45202  CINCINNATI, OHIO  TELEPHONE:(513) 884-2456  190 EAST MAIN STREET  EiBiusbingtott, /i.e. 20515  BATAVIA, OHIO  45103  TELEPHONE:(513) 732-1766  June 24, 1983  Paul Volcker Chairman Federal Reserve 20th and C Streets, NW Washington, D.C. 20551 Dear Paul: Here's a piece I put together about the need for a more cooperative--less confrontational--relation between the Fed and the Congress. I believe you have a far better chance than the President to encourage the Congress to act now to head off the dire consequences of large outyear deficits. Hope you find this of some help. Sincerely,  Bill Gradison Representative in Congress BG/a  le tlir SYG 3,Y1 .42 NY3/10,2 20   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CYVOg  (0:1  1  June 23, 1983  CONGRESSIONAL RECORD — HOUSE  deficit-laden Federal Government. Congress wants to know in advance, and with specificity, the Fed's -objectives" for GNP, inflation. and unemployment. The Fed argues that establishing short-term objectives for these variables would encourage undesirable "fine tuning." place too much emphaThe SPEAK-KR pro tempore. Under sis on short-term ecotSomic events, and a previous order of the House, the gen- mislead the public into believing that tleman from California (Mr. Manumonetary policy can relieve the need a/EYES) is recognized for 30 minutes. for difficult choices on the budget and [Mr. DANNEMEYER addressed the other areas of economic policy. House_His remarks will appear hereafWhile public debate is focused on ter in the Extensions of Remarks.) this disagreement, the basic issue of how to have compatible monetary and The SPEAKER pro tempore. Under fiscal policies remains unresolved. a previous order of the House,the gen1C.A'S ROLZ There is need for a new accord, this from Pennsylvania (Mr. time between Congress and the Fed, to RCA paid NASA's $10,000 fee for the tleman GEHAS) LS recognized for 15 minutes. Orbit '81 space aboard the space shuttle. define their proper roles in laying the Engineers from RCA plants and the staff [Mr. GEKAS addressed the House. basis for a sustained, noninflationary of RCA's Government and Commercial Sys- His remarks will appear hereafter in recovery. There is no more important tems Divisions have lectured students an task for the Fed, if its hard-won gains of Remarks.] computers, computer software, amateur the Extensions against inflation are to be preserved, radio satellite terminals, and electronic test and no greater challenge for the Conequipment ACCORD Bk..i'VVEE.N CONGRESS if the nearly unanimous concern gress, field to several trips taken Students have AND THE leED NEEIDED of its Members about large outyear RCA plants and Laboratory in southern The SPEAKER pro tempore. Under deficits is to be translated into deficit, New Jersey (Princeton. Camden and Moorestown). a previous order of the House,the gen- reducing actions. RCA engineers have served on technical tleman from Ohio (Mr. GRADISON) is The key elements of the 1983 accord advisory committee for the students' design- Aecognized for 5 minutes. be: should of the experiment In addtion, the RCA di- • Mr. GRADLSON. Mr. Speaker, now a commitment by the Fed not First, visions have donated more than $450,000 of leadership the of question the that . to use its power to influence the worth of surplus electronic test equipment settled, been has Reserve Federal the and short-term interest supply money high schools. both to In addition,, the mircroprocessor that will we can turn our attention to the job rates in a manner that chokes off ecocontrol the experiment's equipment was do- we want the Fed to perform, and how no.mic recovery. nated by RCA as was the consumer grade Congress can work in concert with the Second, credible action by the Convideo camera and recorder that wW docu- Fed to meet joint objectives. The Fed gress to reduce the deficit to below 2 ment the ants' space voyage. has something Congress wants: lower percent of GNP by Mail year 1987; RCA Solid State Division, Consumer Prod- Interest rates. And we have something and ucts Division and RCA Service Company over control job: do their to need they Third, a public statement by the Fed and have donated new equipment, advice priority highest Our policy. fiscal throughout congressional leaders in support basis and continuing a on services the training and development cycle of the should be given to working coopera- of the accord. tively with the Fed rather than acting Orbit '81 projectBecause so much attention has folike adversaries, with fiscal policy and cused on who should chair the Fed, a CHRONOLOGY November 1977: Project conceived at a monetary policy pulling in opposite di- primary task facing the agency has meeting of NASA officials and community rections. been given inadequate attention. I am There is precedent for such action. suggesting that the Chairman's goal leaders. RCA offers to pay *10,000 NASA fee for small experimental payloads aboard Once before the policies of the Federal should not be to make the White the shuttle. Reserve were under attack, its trea- House happy, or to satisfy foreign cenJanuary 1978: Camden Board of Educa- sured independence threatened; the big city bankers, or tion endorses and approves a program that Fed was at loggerheads with another tral banks, comfort markets. Instead. money the reassure will put a student experiment in space. fear of the Chairman should strive to mend and ; of Government branch administrators School 1978: of Summer and teachers start to develop science cur- future inflation was a pervasive con- the tattered Fed-Congress relationship ricula, aided by a grant from RCA and the cern. This was in 1951, when disagree- by developing with Congress an accord ment between the Treasury and the that will result in lower deficits and a Camden School Board May 1979: Students select ant colony as Fed broke into public view over the better mix of monetary and fiscal the subject for experiment. Treasury's desire to peg the price of policy. July 1979: NASA deems experiment sig- 13.5. bonds and the Fed's concern The accord would aid Congress by nificant and approves. in the assuring that the politically painful increases inflationary about February 1980: Dr. Robert Frosch. NASA Out of this controversy steps necessary to reduce the deficit administrator, visits schools and deems money supply. of March 4, 1951": came the "Accord school Orbit '81 a role model for other high would not be made politically disThe Treasury and the Federal Reserve astrous by a monetary policy that programs designing experiments for the System have reached full accord with re- would abort the recovery. Likewise, space shuttle. October 1981: Students' design for experi- spect to debt management and monetary the accord would give the Fed the asment approved by panel of RCA enginneers policies to be pursued in furthering their surance that ficrikl policy would be and biology professor John Tarka of common purpose to assure the successful financing of the Government's requirements such that it could safely pursue a modTemple University, Philadelphia_ May 1982: Students complete construction and, at the same time, to minimize monetar- erate monetary policy. Without such an agreement, Conof experiment Tests scheduled at RCA fa- ization of the public debt cility in Princeton, NJ. Now the Fed and the Congress are at gress and the Fed risk a continued September 1982: Students began improve- odds over clashes between monetary confrontation that will hinder, if not ments to the experiment based on advances and fiscal policies. There is fear that stifle, economic growth_ In the ab.. in the state of the Art. be dampened or sence of positive action by Congress to April 1983: Students complete preparation the recovery may reduce deficits. the Fed would likely of the experiment at Kennedy Space Center even reversed by rising interest rates caused by competition for funds be- choose one of two tnrks- Either pursue for loading aboard STS-74S tween a reviving private sector and a a tight money policy in an attempt to  highly sophisticated social structure, perhaps the nearest approach to human civWzation in the insect world. Other advantages include their hard external skeletons, able to withstand the rigors of lift-off and added gravity, their abWty to live in confined spaces with minimal life-support mechssisrns and their ciliated feet which can cling to smooth surfaces, even tri the absence of gravity. The carpenter antis among the hardiest and largest type ants found in North America, have the ability to withstand wide variations in temperature and for their size (as long as a half inch) which makes them easy to observe. The four-month average lifespan of the carpenter ant makes it likely that birth, death and other major events in the ants' life -cycle will occur during the Space Shuttle's one-week voyage..   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The SPEAKER pro tempore. Under a previous order of the House, the gentleman from Arkansas (Mr. ALEXANDER) is recognized for 60 minutes. [Mr. ALEXANDER addressed the House. Ills remarks will appear hereafter in the Extensions of Remarks.]  u ne  ,  gy: Decisions for vanced Technolo d rl wo its l concluded that— help our Nation maintain stimulate America," this pane or , cy pre. li po cal fis must act now to Offset stimulative y policy in order economic leadership and pment acThe United States d an use p lo ve de ne lo ve mo to de ty pursue a loose serve Its basic capaci er needed research and th innt ei is . ca In Th cy y. fi li ni log po ig hno -s cal tec fis ed ically advanc om on ec to accommodate uld be high interest tivities. It would also have l-ree sel th efor essential wo including the cr novative capacity is case, the result tive secondary benefits rga va ne g of the econom7 and or ein of l-b sh wel gi th ug ow d sl newal an and bs, the gr w jo ne of n rates io at ty. Trade in adnCo ry non r attacks the ge d nation'a milita securi an e es th ri st du t in or services growth—and furthe pp us su revenues vanced technology products anrd onomic de in reducing defi- io tu x ti ta ep in al on r ti fo di ec ou ad s of to es n_ ly gr us atio will contribute enormo activity. d's Independence, as er nology product and ch te cits and on the Fe ame the other. rough increased economic ed nc th va Ad . lth hea e, zr aw bl to e s ar ue s rmeate the economy, each contin As many of my mlleague processes not only pe d? Is there he e ac en re be be ve rd co ha ac ills tivity, but also from th Can an en its track our recent economic ctors. One key Increasing producdefense hardware. iv —g ss re ng Co e th of modern ral fa anything om- basis nvince the Fed caused by seve on to recomrecord—can do to co ly skeptics.] factor, pointed out in various econ s This report also went y' ab tr nd un ta co rs de un r ou ntion be given en and an mend that careful atte it outyear ic indicators, has be rm vpe ti t uc no l od pr wil It al and effecri at public th notable decline in indust en impressive to "maintaining the health d indusan be ve sity deficits? first requires ity. While there ha of our basic in- tiveness of both univer It is. e er th n and io e at ev educ I beli there is a innovations in many try-based research, at th In th ly ow on gr t no of t te agreemen overall ra ning?' that action is needed dustries, the dustrial productivity trai e introducing problem, but also in s America' The legislation we ar lem; put an . ob 's pr 70 19 at e th th e ng lv ri so du gnificant step in now to likely that slowed considerably today represents a si re ac mo ty is vi It ti at uc th od pr y, allenge. It reoic other wa meeting this national ch ctive Federfled by con- In fact, our domest sti be in l ts wil in po th of ow gr le up effe co economic ognizes that the most an it is that tually declined a e th on ts ici is def d en e tr rg s la erou ate long-term pritinuing - al actions to stimul ing the deficits 1981. This dang tol br l to wil rd fo th af ow gr ot ic nn in research and deeconom • 'which our Nation ca as vate investments e. ed siz rs le ve ab re ge na be ma at remove po: st mu down to velopment are those th knowledgement erate and which ac es ir qu re it , rs to such innd ie Seco tential,structural barr ff which exists soon as possible. do an in st e in cal cl iti de attempts to pol r on ou e ati of th By many accounts esentative of vestment. This legisl utional barriers -would deal with ho -w e os th n pr it ee betw is re overcome these inst spending and those productivity sinesses logical leadno ch te deficits by cutting g h in ug od low a wide range of bu ro er al s th d a' ic an ts er ici Am def mth wi co ve rel who would deal s to carry our producti tax ership and lagging internationa rm g fi d in rr an fe de g in be ud cl situation can higher taxes—in t basis. w search on a join _ While members petitiveness. This lo ive ect of ing the eff t de ye ca t de no a ts cu l recent reports, includ ages traced to more than ra nt ve va Se ad cal iti D pol e R& d onal Reof each group se this capital investment and limite usly rnehtioneci Nati in io de ev si pr r he it ne es at s, St -Higher In their position the spending. Although the United Council and Business called n ch wi ar se n ca r r wa fo l ca ng largely ideologi rld in spendi rum studies, have - Education Fo ttle; both spending still leads the wo si ba Bu t an d t restricrt ar po rv im Ha ly al 80 re relaxation In antitrus es are -basic research. a 19 a r nu fo ve re d se ea at cr th in t op American restraint and ially ness Review report pointed that presently hinder nt s ta on bs ti su to ry re sa in nt vantage of politically necs worst the private sector investme stry's ability to take ad National e du Th In . ts ci fi de r en ea be ty reduce the ou lopment has chnologies. The uld be for both search and deve s new high te ar ye nt rongly supce re in possible outcome wo d the steadily decreasing arch Council report st an se " Re ng di en sp e c ti th es n of our in the "more'dom a easeful reexaminatio ss to with no changes foreseen ed re rt ng po Co in es rc fo , , ing that— "no new taxes" antitrust policies, stat me proclaiming Vic- future_ s ou gi ti has begun es pr e prevail, and go ho U.S. antitrust policy e il Wh recent study by th A s ha petition into actory. now—in Business-Higher Education Forum king international com on ta ti e ac es ir qu re e hanc tion still fails to giv Finally, it context stressed the strong need to en count, Its implementa ar con ye e onad ti tr ec l el ona e ati th ern y to com- sufficient weight to int it 1983, not in il ab 's ry cust st du : du itr re ts in e ant at en jor elem our priv velop- siderations. The manner in which lied sis of 1984—on the ma spending pete with foreign ventures in de e ns and app fe de in th ow gr nologies. statutes are interpreted in international ch te tion of the w ne ic g st in me et do rk ng on g and ma raints basic charged with interferi ve and phased-in rest specially those in a firm commitment to ader- competitiveness_ For example, firms ha ch t ou th —e Wi ms ra og pr ear le res r of ou spending ts t, efi nonpoor—and in- research and developmen gical areas difficulty retaining the ben tifirm collaborabenefitting the . t of mul chnolo that are the produc ship in many new te are e th in ed afe—harbor- rulings creases in revenue_ ng "s le ve h ap of fait verely chal tion, prospecti le se l a be s era y ke gen ta ma a is it e . er e ly th ar ed d Admitt Japanese e dily available, an th be rea e. n t pl ca no am ex rd acr co e Fo at ac _ is re rpor to believe that th stakes make IL futu g fast on the American lead in uncertainty regarding what co the basis of in on s as e ion cl th act al t leg Bu ,. cit gy . achieved tions may eli hip technolo such areas as microc nence in this anti-trust legislation.. worth the try.• mi ee ainty, management threatening U.S. pr ecBecause of this uncert el ny ti e es Th . gy as creating excessive nolo GY RE- Important tech l be at the heart of cites anti-trust policy LO NO CH TE ties that may beneivi act ic devioes wil THE HIGH for a range of on k tr T ris EN s. PM er LO ut mp VE co DE de, such as pooling reSEARCH AND future advances in fit innovation and tra r ou 83 n on the ts 19 uc od OF pr T AC nsumer s, pooling informatio co ort , eff ns ch io ar at se ic JOINT VENTURE un mm co itors, or poolore. Under s. of international compet mp ea rk te ar wo o r he pr ot R KE ny EA ma ose casts are and The SP America in ing development programs whan industry to e, the gento us e Ho ng e le th al of ch r re de tu or in m fu The a previous e. too large for any one fir onsin (Mr. SeerSIM technology development is awesom eign governs undertake. By contrast, ford France—entleman from Wisc ha s. s te es nu en mi iv 5 it r et fo mp co ized l Japan an EtRENNER)Is recogn BRENNER. h Mr. Internationa "difficult than ever to de- ments—for example, among firms throug EN on ati NS re per SE mo coo it e de ag ma ur co • Mr. is crn It . ati troducing legisl perative programs. oit new inventions Speaker. I am in - velop and expl Nation's economic and mergers or coo le nt ge d he is gu in st ation we are indi certainly in our Jointly with the In essence,the legisl provide new ur D) co OY en LL to . s st rs re (M te e in se tional security ing today would woman from Tennes forward in na develop new tech- troduc ve mo d an on r joint research s ti ea Na id w r ou ne e to help d statutory guidelines fo es in order to - ag ar ch rw te fo ve gh mo hi to w us ne t ng nologies, allowi velopment ventur developing importan foundation for our and de e whether these ventures as semiconducs e ea th ar y ch la su lp he in d es an nologi determin and cessors and super- future modern society. ance with Federal li mp co in re tor chips, micropro we ma n d io These ent situat chemical an e antitrust laws. urgency of our pres at St e r la Th computers, sensors, mi si arn rt te al po botics, and clear in a recent re also extend to any terial sciences, ro ny has been made s National Research guidelines would ma ll as g on am s, em st the venture, as we prestigiou in t an a ip ic by tive energy sy rt pa gh ed Hi tl ti slation. the the venture. l. In its report en others. This legi lop- Council pane Ad- to all employees in ve in De n io d it an et ch mp ar Co se "International Technology Re Act of 1983, would e ur nt Ve t in Jo ment  H 4454 .40  CORD CONGRESSIONAL RE  HOUSE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 12, 1983  The Honorable Paula Hawkins Chairman Subcotrimittee on Consumer Affairs Couliaittee on Banking, Housing, and Urban Affairs UnitQd States Senate Washington, D. C. 20510 Dear Chairman Hawkins: Thank you for your letter of June 27 concerning your Subcommittee's hearings on S. 1152, which would amend the Consumer Credit Protection Act. Governor Nancy H. Teeters is looking forward to appearing before your Subcommittee, on behalf of the Board, on Tuesday, July 19, at 9:30 a.m. Sincerely,.  CO:DJW:vcd (V-116) bcc:  Gov. Teeters Ellen Maland Mrs. Mallardi (2)  JAKE GARN, UTAH, CHAIRMAN JOHN TOWER, TEXAS JOHN HEINZ, PENNSYLVANIA WILLIAM L. ARMSTRONG. COLORADO ALFONSE M. D AMATO, NEW YORK SLADE GowroN, WASHINGTON PAL!LA HAWKINS, FLORIDA MACK MATTINGLY, GEORGIA CHIC HECHT, NEVADA PAUL TRIBLE, VIRGINIA  WILLIAM PROXMIRE. WISCONSIN ALAN CRANSTON, CALIFORNIA DONALD W RIEGLE, JR., MICHIGAN PAUL S SARBANES, MARYLAND CHRiSTOPHER J. DODD CONNECTICUT ALAN J DIXON, ILLINOIS JIM SASSER, TENNESSEE FRANK R. LAUTENBERG, NEW JERSEY  M DANNY WALL STAFF DIRECTOR KENNETH A. McLEAN. MINORITY STAFF DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  United eStates c$enate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C. nsio  June 27, 1983 r  CD  Honorable Paul A. Volcker Chairman Federal Reserve Board Washington, D.C. 20551  "•••r-7 ) c"--  Cr)  -  Dear Mr. Chairman: This letter confirms the invitation of the Subcommittee on Consumer Affairs, Senate Committee on Banking, Housing and Urban Affairs for you to appear as a witness to offer testimony on S.1152, which would amend the Consumer Credit Protection Act. The hearing will be held on July 13, 1983, in Room SD-538 of the Dirksen Senate Office Building beginning at 9:30 a.m. The purpose of the hearing is to determine whether consumer leasing provisions in Title I of the Consumer Credit Protection Act should be streamlined, as the Truth-in-Lending Act was simplified three years ago. The Subcommittee welcomes comments on the proposed consumer leasing disclosures set forth in S.1152, as well as alternative legislative approaches to simplification. The Subcommittee expects to focus particular attention on the coverage of rental purchase agreements in S.1152. Consequently, comments concerning the adequacy of disclosure for consumers entering into rental purchase agreements, the necessity for coverage of rental purchase agreements under the Consumer Leasing Act, and the relationship between state and federal laws affecting these arrangements, would be most helpful. A copy of the Committee's guidelines for witnesses is enclosed for your reference. The rules of the Banking Committee require that at least 75 copies of the testimony be submitted to the Committee's offices not later than 24 hours prior to the hearing. If you require any additional information, please contact II Linda Zemke of the Banking Committee staff at (202) 224-1564. Sincerely,  Paula Hawkins Chairman Subcommittee on Consumer Affairs Enclosure  ,  June 29, 1983  The Honorable Mark 0. Hatfield United States Senate 20510 Washington, D.C. n2ar Senator Hatfield: Thank you for your letter of June 9 regardinq the membership anplication of Great Western Bank, Dallas, Oregon, a proposr?d new bank. I am responding to your letter to Chairman Volcker since the application is now pending before the Board. The application was initially filed with the Federal Reserve Bank of San Francisco in July 1981, but it was returned because of malor informational deficiencies. The application was refiled in March 1982. During 1982, while the Reserve Bank was waiting for Applicant to identify an adequate management team for the new bank, Applicant's charter authorization by the Oregon Superintendent of Banking expired. Therefore, the Reserve Bank again returned the application to the Anplicant. In 1983, the Superintendent of Banking renewed his authorization. A new apolication was filed with the Federal Reserve Bank, anl the application was accented for processing on March 31, 1983. The Federal Reserve Rank of San Francisco has conducted a field examination in the Dallas, Orenon, area in connection with the application. The Reserve Bank has completed its final memorandum and has forwarded it, with its recommendation, to the Board for final review and action. Board staff will carefully review the findings of the Peserve Bank and will expeditiously bring the case to the Board for a final decision. You may be assured that the application will receive careful consideration, and as soon as a decision on the case is reached, your office will be notified.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, (Signed) Donard J. Winn Donald J. Winn Assistant to the Board JME:CO:pjt (#V-105) bcc: Mr. Egertson Mr. Ryan Mrs. Mallardi 11/  V MARK 0. HATFIELD, OREG., CHAIRMAN TED  TEVENS, ALASKA LOWELL P. WEICKER, JR., CONN. JAMES A. MC CLURE, IDAHO PAUL LAXALT, NEV. JAKE GARN, UTAH  WILLIAM PROXMIRE, WIS. JOHN C. STENNIS, MISS. ROBERT C. BYRD, W. VA. CANIEL K. INOUYE, HAWAII ERNEST F. HOLLINGS. S.C.  HARRISON SCHMITT, N. MEX. THAD COCHRAN. MISS MARK ANDREWS N. OAK. JAMES ABDNOR. S. DAK. ROBERT W. KASTEN, JR., WIS.  THOMAS F. EAGLETON, MO. LAWTON CHILES, FLA. J. BENNETT JOHNSTON, LA.  ALFONSE M. D AMATO, N.Y. MACK MATTINGLY, GA.  WALTER D. HUDDLESTON, KY. QUENTIN N. BURDICK, N. DAK. PATRICK J. LEAHY, VT. JIM SASSER, TENN.  WARREN RUDMAN, N.H. ARLEN SPECTER, PA.  DENNIS DE CONCINI, ARIZ. DALE BUMPERS, ARK.  J. KEITH KENNEDY. STAFF DIRECTOR THOMAS L. VAN DER VOORT, MINORITY STAFF DIRECTOR  'Unite?. Ziatez Zegatem -cz COMMITTEE ON APPROPRIATIONK WASHINGTON.  D.C. 20510  rrl  co  C.&)  c-  2L7  r--  rn -n rn -4 C",  June 9, 1983  C=)  rrl  r-n cn  rn o C:›  Mr. Paul A. Volcker, Chairman Federal Reserve System Constitution and 21st Street Washington, D.C. 20551  (I)  Dear Mr. Volcker: My leter today is on behalf of the Great Western Bank (In Organization) located in Dallas, Oregon. Over two years ago, a group of progressive Polk County citizens concluded that there was a need for a new community oriented bank in the City of Dallas, Oregon. Their rationale was that since several chain banks were considering branching into Dallas when the home town bank protection act expires at the end of 1983, another bank was needed and would be successful in the community, but they felt that the area could best be served by a new local bank, owned and managed by local people to serve local people. An independent feasibility study by Dr. Jim Robb of Pacific Research, Inc. came to the same conclusions. The Oregon Superintendent of Banks, John B. Olin, confirmed their conclusions and authorized organization of Great Western Bank. To date $1,250,000 260 Oregonians who economic growth of bleakest period of  in stock subscriptions has been collected from approximately believe Great Western Bank will prosper and contribute to the Dallas and Polk County. This money was raised last year, the the current economic cycle.  Membership in the Federal Reserve System is the final hurdle. The Federal Reserve Bank of San Francisco has had Great Western Bank's application since July 1981. It is my understanding that the Directors of Great Western Bank have req-uested that the Federal Reserve Bank of San Francisco forward their application to the Board of Governors for final consideration. I am confident from the supporting information supplied with the application that there is adequate support for another successful bank in Dallas, Oregon and I urge timely and favorable review of Great Western Bank's application. With best regards. Sincerely, ) Mark O. Hatfield Chairman MOH:aw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ile•••  .•.Of • GOvt  BOARD OF GOVERNORS OF THE  co  FEDERAL RESERVE SYSTEM  rrE[r •  WASHINGTON, D. C. 20551  D • L 12F•••••  PAUL A. VOLCKER CHAIRMAN  July 5, 1983  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: The Board has reviewed the draft bill prepared by the Treasury Department to authorize new nonbanking powers for bank and thrift holding companies. The bill would provide for the use of a holding company as the vehicle for the conduct of nonbanking activities by banking organizations. It would extend the existing nonbanking powers of these companies to include services of a financial nature as well as those closely related to banking. In addition, the bill would authorize certain securities services, insurance and real estate brokerage, real estate development (with limitations on the amount of capital investment) and insurance underwriting. I have, in numerous public statements, expressed the Board's support for appropriate expansion of nonbanking activities of banks to allow more effective responses to market incentives, provided that these activities and the manner in which they were supervised are consistent with the public policy objectives flowing from the unique role that banks play in our economy. Accordingly, we have been concerned that, as part of the process of powers expansion, account should be taken of prudential considerations and of the need to maintain the basic separation of banking from commercial and industrial Fulfillment of these objectives, and the activities. overriding need to maintain confidence in our banking system requires, we believe, a certain degree of supervision and regulatory oversight. The provisions of the Treasury bill recognize these objectives and have the support of the Board. In particular, the terms and conditions for the authorization of expanded powers, and the provisions for follow-on supervision and examination, are sufficient to meet our concerns while not unduly limiting the ability of bank holding companies to compete.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r  re  A  The Honorable Jake Garn  -2 _  As to the powers themselves, while the Board will require additional time to consider fully whether or not any additional criteria for the insurance or real estate authorities might be appropriate, the Board is broadly in agreement with the additional powers contained in the Treasury bill. Similarly, with respect to S&L holding company powers, the Treasury proposal is an appropriate and reasonable starting point. At this time we have no specific suggestions to improve However, we will be giving this matter further them. consideration, particularly with respect to assuring competitive balance in powers and benefits among institutions offering similar services. In addition, there are other matters not included in the Treasury proposal on which the Board may wish to suggest legislative action. These subjects include the need for rules to maintain an appropriate degree of coordination between authorities granted under State and Federal law, the possibility of changes in the laws establishing geographic limitations on banking activities, as well as the need to consider, as part of any comprehensive definition of the term bank, authorizing reserve requirements for companies that offer The Board intends to expedite its transaction accounts. consideration of these issues and make recommendations to you in the near future. In the past, I have often stressed the urgent requirement for positive banking legislation to address the fundamental need to adapt the banking and financial system to a rapidly changing world. To allow the time for Congress to act on permanent legislation, I have previously submitted draft legislation to avoid a preemption of Congressional discretion in this area. In our view, the Administration's proposal provides a complementary comprehensive approach looking toward effective competition in the provision of financial services while maintaining the nation's basic interest in the soundness and stability of the banking system. I hope the Congress could act quickly on this comprehensive legislation with a view to completing Congressional action by the end of this year. Sin erely,  atg, AO Identical ltrs. to Chrmn. St Germain, Cong. Wylie, Sen. Proxmire   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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